[00:04.440 --> 00:11.040]  All right, welcome to day two of Monero Village at DevCon Safe Mode 2020. I'm Daniel Kin,
[00:11.040 --> 00:19.580]  and welcome to another day of Monero Village. We have a lineup of interesting talks for you,
[00:19.580 --> 00:29.060]  and also tutorials and so on. So this talk that I'm going to give is called Sound Money Safe Mode,
[00:29.060 --> 00:36.180]  and it is a kind of a broad, big-picture introduction to cryptocurrency and Monero.
[00:36.400 --> 00:46.180]  I will do my best to get this all transmitted in a timely manner. There's a lot of material,
[00:46.180 --> 00:52.800]  because I'm assuming that the viewer here is a bright person, knows their way around a computer,
[00:52.800 --> 00:58.120]  but has not necessarily spent a lot of time thinking about Bitcoin or Blockchain or Monero.
[00:59.560 --> 01:04.980]  A little bit about myself. I studied physics at Harvard. I did a bachelor's, master's, and PhD
[01:04.980 --> 01:12.000]  there. There I kind of had a habit ingrained in me to always look at data. So there's going to be a
[01:12.000 --> 01:17.960]  lot of data shown in this talk. Most of my career was spent in the non-profit sector. So my first
[01:17.960 --> 01:22.060]  job out of grad school was with a symphony orchestra, where I ended up doing about 700
[01:22.060 --> 01:26.640]  concerts professionally. First as a violinist, and then later as a keyboardist. And then
[01:26.640 --> 01:30.840]  concurrently with that, I jumped through the hoops to become board certified in radiation
[01:30.840 --> 01:37.520]  oncology physics, where then as a medical school professor in medical physics, I helped about a
[01:37.520 --> 01:43.160]  couple thousand patients with their fights against cancer by helping with the technical aspects of
[01:43.160 --> 01:49.720]  delivering high intensity radiation to cancer. So it was there that I signed up for the executive
[01:49.720 --> 01:54.880]  MBA program at Yale, because I thought that I wanted to show an interest in the way that the
[01:54.880 --> 02:00.460]  world works in a different way than in physics. Of course, in physics, you're, you're studying how
[02:00.460 --> 02:05.520]  the world works at the smallest levels, which is what I did as a particle physicist. But then to
[02:05.520 --> 02:11.760]  think broadly about real world human problems from a variety of perspectives, the MBA is good for
[02:11.760 --> 02:18.160]  that. So I ended up signing up for that. And while doing that, I made a switch to the for profit
[02:18.160 --> 02:25.240]  sector, I joined a small hedge fund on the hedge fund world, meaning like about a billion dollars
[02:25.240 --> 02:29.540]  under management management, and I become director of research there.
[02:30.220 --> 02:36.980]  I was a co author of a paper that won the top research award of the CFA Institute, which is
[02:36.980 --> 02:46.060]  the basically the premier credentialing Institute for equity analysts. So that paper was about the
[02:46.060 --> 02:53.120]  effect of liquidity on asset prices. So it was there that kind of in my spare time, I was getting
[02:53.120 --> 02:58.020]  more and more interested into cryptocurrency, and blockchain. And then I made a decision that
[02:58.020 --> 03:02.640]  I thought that this was a genuine innovation, of which there are not that many that happened in
[03:02.640 --> 03:08.480]  one's lifetime. So I jumped to my own small business, which is what I do now as an independent
[03:08.480 --> 03:15.240]  consultant. So right now I help bridge two very separate worlds as the founder and CEO of
[03:15.240 --> 03:20.560]  Sweetwater Digital Asset Consulting. As you can see on the bottom, there's the world that Defcon
[03:21.280 --> 03:26.440]  kind of represents, which is a non-commercial, open source, cypherpunk, grassroots cryptocurrency
[03:27.180 --> 03:36.000]  culture. And on the right side is the very parallel universe of traditional asset protection,
[03:36.000 --> 03:42.180]  trusts and family office, portfolio management, estate and tax planning. These two separate worlds
[03:42.180 --> 03:46.900]  know very little about each other in practice. They often make assumptions about each other that
[03:46.900 --> 03:56.780]  are kind of, you know, maybe based in fear and not necessarily information. And so as one who
[03:56.780 --> 04:01.820]  has significant experience on both sides of this divide, I help people who are in one side or the
[04:01.820 --> 04:11.540]  other to gain the benefits of genuine engagement of the other. So in my non-profit efforts these
[04:11.540 --> 04:18.260]  days, I am also a community volunteer for the Monero Project. My talking here is on a voluntary
[04:18.260 --> 04:25.320]  basis. I do not receive any support from the Monero Project. I've never asked for support from
[04:25.320 --> 04:31.360]  the Monero Project because actually I want to maintain my independence as my primary loyalty
[04:31.360 --> 04:40.300]  duty is to my consulting clients, to whom I owe the duty of doing the research and examination of
[04:40.300 --> 04:44.540]  the entire cryptocurrency space and making recommendations on what I think are the
[04:44.540 --> 04:50.360]  most compelling projects out there. And within cryptocurrency, I also specialize in
[04:50.360 --> 04:56.820]  tokens that do what I think is the killer app of Nakamoto Consensus, which is store of value.
[04:57.140 --> 05:03.300]  Basically, cryptocurrencies that act like money, as a private form of money. And within that space,
[05:03.300 --> 05:08.800]  I think that there are only really two projects worth considering and they are Bitcoin and Monero.
[05:08.800 --> 05:15.760]  So that's what I do for my non-profit in my non-profit time is that I help out with the
[05:15.760 --> 05:26.440]  community and that's about me. All right, so this talk is called Sound Money Safe Mode
[05:26.440 --> 05:33.360]  and it's got four parts. First, I'm going to talk about the pandemic and the economic fallout so far
[05:33.360 --> 05:44.400]  from the pandemic. Second is that the management of fiat scarcity in the world leads to a strong
[05:44.400 --> 05:50.600]  suggestion that it might be a good time in history to be looking at independent sources of scarcity.
[05:50.600 --> 05:55.900]  So that will be the second part of the talk. Third, I'll talk about fungibility, what that means
[05:55.900 --> 06:02.330]  and why it's important as the world moves increasingly towards a mass surveillance society.
[06:02.330 --> 06:08.490]  And the fourth part will be how one can get involved with the Monero project. So before
[06:08.490 --> 06:13.390]  starting, I wanted to say thanks to a few people in the Monero community who I had consulted with
[06:13.390 --> 06:19.830]  while preparing this talk. So they are Howard H.Y.C. Chu, Dr. Sarang Nether of the Monero
[06:19.830 --> 06:30.920]  Research Lab and Dr. Francisco Cabanas of the Monero Core Team. All right, so very much has
[06:30.920 --> 06:39.140]  been said about the pandemic, so I'm not going to go into that too much. But I wanted to show
[06:40.400 --> 06:46.840]  basically, from a social engineering point of view, how one can see this entire pandemic that
[06:46.840 --> 06:53.140]  we're in the midst of. Really what this is, is an example of a microbe that did a very good job of
[06:53.140 --> 07:00.980]  social engineering humanity, basically taking advantage of a weakness in evolved humanity's
[07:00.980 --> 07:07.680]  ability to diagnose their disease state. So here I'm showing this in the form of a flow chart.
[07:07.700 --> 07:14.160]  And if you start here in this upper left corner, this is basically what people would go through
[07:14.160 --> 07:20.440]  as their decision process before the pandemic hit. So they would be sitting at home,
[07:20.440 --> 07:24.140]  and you ask yourself, well, do I feel like going out? Well, if you don't feel like going out,
[07:24.140 --> 07:28.740]  you stay at home. But if you do feel like going out, then you diagnose yourself as being healthy,
[07:28.740 --> 07:35.020]  because of course you're healthy, because you feel like going out. If you weren't healthy,
[07:35.020 --> 07:39.400]  you wouldn't feel like going out. Therefore, since you feel like going out, you must be healthy.
[07:39.600 --> 07:44.780]  So there's a self-diagnosis that gets made there. And now that we're in the midst of the pandemic,
[07:44.780 --> 07:49.480]  we can look back at this pattern of thought and think, wow, that was kind of naive.
[07:50.900 --> 07:54.400]  There's like this bygone era when you could assume that you were healthy,
[07:54.400 --> 07:59.940]  just because you felt like you were healthy. All right, so going on, again, in the pre-pandemic
[07:59.940 --> 08:04.220]  thought process, because you diagnose yourself as being healthy, now you go out.
[08:04.280 --> 08:10.100]  And so now you're dealing with other people, and their disease state is not known to you.
[08:10.120 --> 08:16.460]  But you use basically a heuristic. That is, you ask yourself, do you see anybody who's coughing?
[08:16.680 --> 08:19.420]  Well, if you don't see anyone who's coughing, then you just carry on.
[08:20.620 --> 08:25.500]  If you do see someone who's coughing, then you diagnose them as being a sick person,
[08:25.500 --> 08:31.740]  and you want to avoid them. And then you carry on, because you don't make a big deal out of it.
[08:31.740 --> 08:36.180]  You just make a mental note that, oh, gee, that person might be sick. Maybe I'll keep my distance.
[08:37.040 --> 08:41.880]  And then do you feel like going home? No, then you stay out in public. And yes,
[08:41.880 --> 08:48.880]  if you do feel like going home, you go home. And nowhere in this loop does the possibility of
[08:48.880 --> 08:54.280]  actually getting sick really come up that much. And so now we can look back at this and
[08:55.120 --> 09:01.520]  see how basically this pattern of thought, which has, I would say, probably evolutionarily
[09:02.080 --> 09:08.760]  developed in humanity, after all, it's gotten us to survive for this many thousands of years
[09:08.760 --> 09:15.200]  as it is. And now all of a sudden, we're confronted with this microbe that challenges that.
[09:15.200 --> 09:20.640]  And of course, it's not fun for anybody to be told, hey, your instincts are totally wrong.
[09:20.640 --> 09:27.280]  You need to not trust your instincts, and you need to stay at home even if you feel healthy,
[09:27.280 --> 09:33.180]  or put on a mask even if you feel healthy, and so on. So people generally don't take too well
[09:33.180 --> 09:40.520]  to being told that their very natural instincts are leading them astray. But nevertheless,
[09:40.520 --> 09:45.280]  if you look at the objective reality, that is the fact.
[09:46.820 --> 09:56.560]  All right, so in addition to having our notions challenged of who is sick and who is not sick,
[09:56.560 --> 10:00.880]  what the current pandemic has also done is challenge our notions of what can you get sick
[10:00.880 --> 10:08.160]  from. And in the right side of the chart is a published study that was published in The Lancet,
[10:08.160 --> 10:13.080]  which is the UK's premier medical journal. And what this is showing is an experiment that some
[10:13.080 --> 10:23.280]  researchers did in which they took SARS-CoV-2 and they put it on money, like cash. They put it on
[10:23.280 --> 10:28.900]  banknotes. So what this chart is showing is how much of that virus remained on the money over
[10:28.900 --> 10:35.820]  time. So here at time zero, they put a drop of the virus on. This is how much virus they measured.
[10:35.820 --> 10:41.840]  And then as time goes on, you can see that the amount of the virus remaining on the money goes
[10:41.840 --> 10:48.520]  down, but it goes down less quickly than one would hope. So for example, here at the 24-hour mark,
[10:48.520 --> 10:55.560]  there is still a significant amount of virus detected. And you have to go to three days out
[10:55.560 --> 11:04.040]  before these researchers found that undetectable amount of virus on the money. So what would happen
[11:04.040 --> 11:10.100]  in a real-world scenario when something like this gets unleashed? And here I'm showing basically the
[11:10.100 --> 11:16.520]  macroeconomic effects of what's happened in the pandemic. So there's a lot going on in this chart.
[11:16.520 --> 11:22.400]  So I'll start with the blue line here. The blue line is showing U6 unemployment. So this is the
[11:22.400 --> 11:30.440]  fraction of people who are either looking for work, or underemployed, or working part-time when
[11:30.440 --> 11:36.000]  they want to be working full-time, or are so discouraged with their state of trying to find
[11:36.120 --> 11:41.960]  a job that they've given up. So all these people are measured, are counted as unemployed in the U6
[11:41.960 --> 11:49.980]  measure of the U.S. government's unemployment number. This is contrasting with U3, which is
[11:49.980 --> 11:55.300]  only counting those people who are actively looking for work and can't find it. So U6 is a broader
[11:55.300 --> 12:00.340]  measure, and so it's widely considered to be more accurate. And here in this plot, I'm showing a U.S.
[12:00.340 --> 12:06.720]  government data going back, all the way back to 1980. So we're looking at 40 years of history here,
[12:06.720 --> 12:13.880]  and you can see here that the unemployment line in the year 2020 spiked up to the highest level
[12:13.880 --> 12:22.920]  that ever in recorded history, at least of the U6 unemployment rate. It spiked up to about 22-23 percent,
[12:22.920 --> 12:30.040]  so one-fourth of Americans out of work. And fortunately, that's gone down a bit since then,
[12:30.040 --> 12:36.940]  but it's still definitely not a pretty number. So what happens when something like this happens,
[12:36.940 --> 12:45.280]  like the demand for services, like in travel, in dining, entertainment, all fell through the floor.
[12:45.380 --> 12:52.000]  And so the federal government's reaction to that was to be concerned about deflation. So deflation
[12:52.000 --> 12:59.120]  happens when people stop spending their money and the economy drops to a halt. So to fight that,
[12:59.120 --> 13:04.300]  they expanded the money supply. So they basically printed money, which is what you do to try to get
[13:04.300 --> 13:09.560]  people to spend again, because by printing money, that reduces the interest rate. The interest rate
[13:09.560 --> 13:14.320]  goes down, then it becomes less attractive to save your money and get a tiny, tiny bit of interest.
[13:14.320 --> 13:20.580]  It becomes more attractive to spend your money. So here in green, I'm showing the MZM money supply.
[13:20.580 --> 13:27.340]  MZM stands for money zero maturity. And what that consists of is the M1 money supply, which is
[13:27.340 --> 13:34.140]  coins, currency, and checking accounts. And it combines that with savings accounts and also
[13:34.140 --> 13:38.740]  money market accounts, which many people use as sort of an alternate form of a savings account
[13:38.740 --> 13:45.540]  these days. It differs from M2 money supply in that it does not include certificates of deposit,
[13:45.540 --> 13:49.820]  which as you know, you go to a bank and you lock in your money for 12 months and they pay you
[13:49.820 --> 13:55.500]  slightly higher interest for the time that your money is locked up, be it 12 months or six months
[13:55.500 --> 14:01.380]  or whatever the time term is that you agreed to. But because that money gets locked up for that time,
[14:01.380 --> 14:08.980]  that is not counted in money zero maturity, the MZM metric. So basically, the green line
[14:08.980 --> 14:18.460]  is showing all of the liquid money in the US. Now, it's a huge number. It's roughly
[14:18.460 --> 14:23.960]  $20 trillion. So because that's hard to get your head around, I've normalized that number
[14:23.960 --> 14:29.220]  to the gross domestic product. That is the value of all goods and services produced in the US
[14:29.220 --> 14:36.640]  in one year. So you can see that the money supply as a fraction of the productive output of the US
[14:36.640 --> 14:42.920]  has been going up for the last four years. And you can see here at 2020, the line spikes up from
[14:42.920 --> 14:50.760]  about 70% to over 100%. So, you know, the word unprecedented gets thrown around a lot for this
[14:50.760 --> 14:58.700]  crisis. But truly, if you look at long term plots like this, and you see that the size and the slope
[14:58.700 --> 15:04.880]  of this money printing that's been happening in the last several months is truly breathtaking.
[15:06.020 --> 15:12.240]  All right, so that's the money supply. So of course, the government can print as much or as
[15:12.240 --> 15:20.740]  little money as it wants with nothing stopping them from doing whatever they want. This has been
[15:20.740 --> 15:30.780]  true since Nixon in the 70s abolished the linkage of the US dollar to gold. So before the 1970s,
[15:30.780 --> 15:38.780]  the US dollar could be traded in for some quantity of gold. And that meant that the US government was
[15:38.780 --> 15:42.360]  constrained in how much money it could print because if it printed more money, it needed to
[15:42.360 --> 15:48.520]  have more gold in order to accommodate those people who wanted to trade in their US dollars
[15:48.520 --> 15:57.540]  for gold. But Nixon in the 70s did away with that kind of inconvenience from the part of the
[15:57.540 --> 16:03.840]  federal government. And so since then, the US government has been free to create however much
[16:03.840 --> 16:08.600]  money it wants, just like any other country, all the countries of the world are free to use
[16:08.600 --> 16:16.420]  their own judgment and discretion in controlling their own money supply. All right, so that has
[16:16.420 --> 16:23.340]  nothing to do with, for example, the ins and outs, the income and the expenses of the government,
[16:23.340 --> 16:30.040]  which would be taxes and government spending. So looking at the bottom line here, the bottom line,
[16:30.040 --> 16:35.300]  which is, you know, wiggling all over the place, what this is showing is on a monthly basis,
[16:35.300 --> 16:40.620]  how much money is the US government taking in, minus how much money is the US government
[16:40.620 --> 16:45.920]  spending. So it's basically taxes minus spending on a monthly basis going back to 1980.
[16:46.020 --> 16:51.360]  You can see that the line goes up and down quite a bit. It basically spikes four times a year
[16:51.360 --> 16:57.940]  because that's when estimated taxes are due. And so there's that seasonal structure to it.
[16:57.940 --> 17:05.420]  Also, if you integrate this over time, then you get the black line that's on top,
[17:05.420 --> 17:12.580]  which is the total federal debt and normalized to GDP again. So basically you can see, for example,
[17:12.580 --> 17:20.180]  in the aftermath of the 2008-2009 financial crisis, the government was spending quite a bit
[17:20.180 --> 17:25.940]  more money than it was collecting. That's this area here. And as a result, when you time integrate
[17:25.940 --> 17:32.660]  that, you get the black line up here in which the rate of increase of the federal debt to GDP
[17:33.300 --> 17:40.800]  went much faster in the aftermath of the 2008-2009 crisis. Unfortunately, in the years
[17:40.800 --> 17:46.040]  that followed the last financial crisis in 2008-2009, which could have been an opportunity
[17:46.040 --> 17:53.100]  to reduce our federal debt, much as what happened in the late 1990s over here, you can see the
[17:53.660 --> 18:01.600]  went down a little bit with the government surplus. No such thing happened in the 2010s.
[18:01.620 --> 18:07.600]  And so the federal debt kept creeping up. And now we're at this point here, in which at the
[18:07.600 --> 18:14.820]  beginning of the year, the debt to GDP ratio was about 110%. And that is before the pandemic. And
[18:14.820 --> 18:21.020]  so this federal debt to GDP number is actually lagged about four months. You know, all these
[18:21.020 --> 18:24.580]  numbers come from the government. So there's like a significant bureaucracy behind it. So
[18:24.580 --> 18:32.260]  it's far from the situation in a digital form of money like Monero, where you can see everything
[18:32.260 --> 18:40.080]  instantly. So there's a four-month lag. And so the debt to GDP number is only showing the first
[18:40.080 --> 18:50.020]  quarter of this year. But it's rather troubling to see all this. Oh, yeah, back down here.
[18:50.020 --> 18:56.620]  So this line here with the monthly taxes minus government spending, as you can see, it really
[18:56.620 --> 19:03.420]  tanked in especially quarter two of 2020. Now, some of this might bounce back, it might not
[19:03.420 --> 19:07.980]  be as alarming as it looks. Because if you're in the US, you probably know that
[19:09.400 --> 19:14.700]  April 15, which is the normal deadline for taxes to be due got pushed back to July 15 due to the
[19:14.700 --> 19:21.530]  pandemic. And so basically, the government was collecting zero tax between April through July.
[19:22.320 --> 19:29.960]  And so that's why you'll see this precipitous drop here is that there was no tax revenue coming in,
[19:29.960 --> 19:34.480]  yet the government was continuing to spend money as it was before. The spending didn't stop,
[19:34.480 --> 19:42.300]  just the income stopped. And so this might reverse itself now that July 15 has come and gone,
[19:42.300 --> 19:50.020]  with a correspondingly high spike in taxes that is assuming that this July 15 was a kind of a
[19:50.020 --> 19:53.760]  bonanza from from the point of view of the IRS with a whole lot of tax money coming in, we'll
[19:53.760 --> 20:04.510]  see if that was actually the case. Zooming into other countries as well. So in the G20, there are
[20:04.510 --> 20:09.830]  eight countries that have been reporting statistics on the amount of money that's in circulation in
[20:09.830 --> 20:15.910]  their particular currency. And that's going back to 2018 here. So of these eight countries,
[20:15.910 --> 20:21.350]  you can see there's basically this hockey stick shape to this curve of how much money of each of
[20:21.350 --> 20:26.430]  these countries is circulating. Here, I've normalized the amount of money in every country
[20:26.430 --> 20:33.590]  to be equal to one on January of 2020. So you can see prior to the pandemic, the money creation was
[20:33.590 --> 20:40.890]  at this rate, and post pandemic, it's happening at this much more fast rate. In the United States,
[20:40.890 --> 20:49.830]  which is the biggest line here, as you can see, post 2020, the M1 expansion has been to the tune
[20:49.830 --> 20:56.930]  of about $1.33 trillion, which amounts to increase in the money supply of about $300 million per hour.
[20:57.590 --> 21:02.310]  Now, if you compare this to, for example, the market cap of Monero, the value of all the
[21:02.310 --> 21:07.790]  Monero in existence, it's something on the order of like about $1.5 billion. So this is saying that
[21:07.790 --> 21:15.470]  the money supply of the U.S. expanded by the size of Monero's market cap roughly five times every
[21:15.470 --> 21:23.670]  day for the last six months. And if you look at MZM money, so this metric is M1 money supply,
[21:23.670 --> 21:28.590]  which is only coins, currency, and checking accounts. If you add to that the other forms
[21:28.590 --> 21:35.410]  of liquidity that are included to MZM, then this figure jumps up, it's to more like half a billion
[21:35.410 --> 21:42.790]  dollars per hour. All right, let's broaden our focus to not just the eight countries in the G20
[21:42.790 --> 21:48.550]  that have reported results recently, but let's look at all the G20 fiat currencies. And let's
[21:48.550 --> 21:55.250]  also expand the time frame in which we're looking to back to 2009. 2009 is the date that I chose
[21:55.250 --> 22:00.490]  here for the left hand scale here. That is because that is the year in which the Bitcoin white paper
[22:00.490 --> 22:06.850]  came out and introduced a way to introduce digital scarcity without needing a central authority to
[22:06.850 --> 22:13.330]  maintain that scarcity. But since 2009, and I again, I've normalized this so that every country's
[22:13.330 --> 22:20.030]  money is equal to one at the beginning of 2009, you can see that there's been steady growth
[22:20.030 --> 22:26.790]  in all of the currencies. There is not one of the G20 currencies that has been flat or has actually
[22:26.790 --> 22:32.490]  decreased their money supply over time, it's all increased. And you can see that the average,
[22:32.490 --> 22:38.530]  if you pick the middle line of this distribution, it looks like it took about seven or eight years,
[22:38.530 --> 22:46.370]  eight years for the average G20 cryptocurrency, average G20 currency to double. So as a former
[22:46.370 --> 22:54.610]  med school professor who worked in oncology, the exponential math of uncontrolled growth,
[22:54.610 --> 22:59.070]  which is something we see in cancerous tumors, is something that I think about when I see a plot
[22:59.070 --> 23:03.470]  like this. So here we're looking at a doubling time of eight years. It took eight years for the
[23:03.470 --> 23:09.570]  money supplied to double. So it's kind of like a certain cancer tumor that takes eight months
[23:09.570 --> 23:14.990]  time to double in size. There's similar metrics that get used in the oncology literature.
[23:14.990 --> 23:20.810]  So, but if you look at the money supply here, it's, and this is a pre-pandemic, pre-pandemic,
[23:20.810 --> 23:26.750]  we're looking at a doubling time of about eight years per doubling. So if you think about how
[23:26.750 --> 23:34.610]  long does, you know, average human survive, let's say 80 years, that is 10 doubling times. So eight
[23:34.610 --> 23:40.870]  times 10, that's 10 doubling times, which means at this rate, the amount of money expansion in a
[23:40.870 --> 23:45.810]  average human's lifetime is going to go through 10 doublings, which is two to the 10th power,
[23:45.810 --> 23:52.470]  which is 1,024. It's about a thousand times increase in the money supply. And that is before
[23:53.350 --> 23:57.970]  the pandemic. And so now after the pandemic, we're looking at a doubling time that's closer
[23:57.970 --> 24:06.270]  to like two years. There's an interesting scholarly book called Monetary Regimes and Inflation,
[24:06.270 --> 24:14.550]  which did a study of 29 historical cases of hyperinflation. So this is, for example,
[24:14.550 --> 24:20.010]  what happened in the Weimar Republic of Germany in the 1910s, and other countries throughout
[24:20.010 --> 24:25.350]  history in which, you know, the people are taking wheelbarrows of money out to buy a, you know,
[24:25.350 --> 24:30.830]  one loaf of bread, that kind of thing. That's because the money supply grows at such a large
[24:30.830 --> 24:36.710]  rate that the prices go up too. And so people basically find that their savings are destroyed.
[24:36.850 --> 24:42.870]  So if you have, you know, $100 in savings, and then in a month from now, you find that the $100
[24:43.470 --> 24:49.650]  used to buy you, you know, say a week's worth of groceries, but now the $100 buys you a candy bar.
[24:49.650 --> 24:56.190]  That's what hyperinflation looks like. And I would say, you know, at least for Americans,
[24:56.190 --> 25:01.630]  none of us have ever had to, you know, live through that. But all accounts of what it is
[25:01.630 --> 25:06.570]  like to survive through something like that, it's no fun at all. It wipes out people's savings.
[25:06.570 --> 25:12.950]  It promotes, you know, social unrest, social violence. It's just not pretty.
[25:13.690 --> 25:18.430]  But this book that studied the underlying economic causes of hyperinflation came to
[25:18.430 --> 25:24.070]  the conclusion that in 25 out of 29 of these historical cases of hyperinflation,
[25:24.070 --> 25:30.470]  the trigger was that there was money creation that financed government deficit. So these charts
[25:30.470 --> 25:36.750]  from the G20 money supply, this should be convincing evidence that the money creation,
[25:36.750 --> 25:41.390]  which is half of this equation, is indeed happening. The second half is the government
[25:41.390 --> 25:47.890]  deficits. So unless governments are able to make extremely difficult decisions and are able to
[25:47.890 --> 25:54.410]  their budgets, now we're going to have two out of two of these criteria met for conditions to be
[25:54.930 --> 26:00.370]  favorable for the development of hyperinflation. And this is not really like a, this is sort of
[26:00.470 --> 26:06.670]  a phase transition kind of thing in which it's hard to predict when, because the conclusion
[26:06.670 --> 26:14.350]  of people that the money is no longer trustable and must be spent immediately, otherwise it lose
[26:14.350 --> 26:19.910]  value, that that decision, which needs to take place among an entire population in order for
[26:19.910 --> 26:26.550]  hyperinflation to take place, that's, it's a social thing, right? So it's like, it's the herd
[26:26.550 --> 26:31.230]  that decides, you know, that they don't have confidence in the money anymore. It's hard to
[26:31.230 --> 26:38.970]  predict. So it's not an, it's not a 100% foregone conclusion that money creation plus government
[26:38.970 --> 26:46.030]  deficits means hyperinflation or increased inflation, even, but it certainly doesn't help
[26:46.030 --> 26:54.910]  the prospects. And so in this backdrop, I think the takeaway for anyone with assets to save
[26:54.910 --> 27:02.910]  is that, you know, it might be wise to consider the possibility that the future might hold higher
[27:02.910 --> 27:07.910]  inflation than what you are used to and what indeed, what you might be comfortable with.
[27:10.250 --> 27:15.550]  All right. So moving on to the second part of the talk. So what does this mean in terms of
[27:15.550 --> 27:26.250]  independent scarcity? So if the unit of account that is being used in your society is, is going
[27:26.630 --> 27:31.910]  under hyperinflation, what people often do is they look for a different sort of unit of account that
[27:31.910 --> 27:37.050]  is not subject to hyperinflation. It's a rather natural thing to want to do is to preserve the
[27:37.050 --> 27:43.010]  value of your savings. And so historically, at least in a hyperinflation sort of scenario,
[27:43.010 --> 27:48.310]  there have been independent sources of scarcity that have been looked at to store wealth. So that
[27:48.310 --> 27:52.910]  would be physical commodities, for example, gold and silver. These are the classic ones.
[27:53.270 --> 27:59.550]  And since 2009, there is a new option for humanity that is in the form of digital commodities,
[27:59.550 --> 28:07.150]  which became possible to consider after the development of the Satoshi Nakamoto Bitcoin
[28:07.150 --> 28:15.930]  white paper. And as one who studies this stuff, thinks about it a lot, I've come to the conclusion
[28:15.930 --> 28:21.030]  that there are really only two projects out of the many that are worth considering. It's Bitcoin
[28:21.030 --> 28:30.380]  Monero. Let's think about digital scarcity networks for a bit. So let's contrast digital
[28:30.380 --> 28:37.520]  fiat versus decentralized digital scarcity like Bitcoin and Monero. After all, our US dollars,
[28:37.520 --> 28:45.260]  our euros or yen, or all of our fiat central bank monies are in fact digital these days.
[28:45.980 --> 28:53.380]  There is such a thing as online banking, your banks are using computers. So the fiat money
[28:53.380 --> 28:58.980]  is a source of digital scarcity. It's just that that scarcity is controlled by a centralized
[28:58.980 --> 29:09.040]  entity. So the access to the database of who owns what is protected. There's a moat of firewalls
[29:09.040 --> 29:13.280]  around that. And there's really just one authoritative version of the ledger. There
[29:13.280 --> 29:17.880]  might be backups and stuff, but really there's basically you have a moat. And then inside the
[29:17.880 --> 29:26.360]  moat, you have the copy of who owns what, the ledger that says who owns what. And once you
[29:26.360 --> 29:32.380]  have access to that, you have quite a bit of ability to change things. At the lower level,
[29:32.380 --> 29:36.880]  like at a bank teller level, of course, you can't just create money out of thin air. But you have
[29:36.880 --> 29:41.720]  the power to manipulate money between accounts. For example, you can transfer money from one
[29:41.720 --> 29:48.020]  customer's account to another. As you go up in the system, the amount of power that you have over
[29:48.020 --> 29:52.740]  that database becomes higher. So that now that you get to the level of the Federal Reserve Bank,
[29:53.300 --> 30:03.740]  when this committee of men sitting around a table, I guess there's some women on the FOMC
[30:03.740 --> 30:09.180]  now, I'm not totally sure. But traditionally, it's been just a group of men making this decision that
[30:09.860 --> 30:14.180]  okay, it's time to print more money. And then when that decision gets made,
[30:14.180 --> 30:22.720]  some employee in the federal government goes to their computer and they click a button,
[30:22.720 --> 30:28.020]  and they get a $1 billion money supply by another billion dollars. Yeah, I guess that's probably a
[30:28.020 --> 30:32.740]  very hardworking federal employee right now, whose job it is to click create money. They're
[30:32.740 --> 30:39.160]  kind of sitting there working overtime, clicking this button over and over. But at the highest
[30:39.160 --> 30:48.400]  levels of government, it becomes literally just arbitrary right access to this ledger. And of
[30:48.400 --> 30:52.360]  course, the software that controls this is closed source. It's closed source, because why would they
[30:52.360 --> 30:58.680]  open source it? Because then that would facilitate bad actors learning how the system works.
[30:59.360 --> 31:04.660]  And there are downsides to this. Mismanagement is probably the chief one. So all these plots that I
[31:04.660 --> 31:09.480]  was showing of the money supply could be interpreted as signs of mismanagement.
[31:10.260 --> 31:15.440]  That the Federal Reserve is supposed to be imposing discipline, it's supposed to be
[31:15.440 --> 31:21.400]  independent of the political process. The Federal Reserve is supposed to be the entity that says,
[31:21.400 --> 31:28.200]  no, I'm sorry, we're not going to print tons and tons of money. Government, you're just going to
[31:28.200 --> 31:34.300]  have to learn to come up with a budget that you can balance. And please don't look to us to be
[31:34.300 --> 31:38.850]  just manufacturing money out of thin air, because that's not sustainable. That's what the
[31:38.850 --> 31:45.790]  Federal Reserve is supposed to do. Arguably, and these charts before are evidence showing that
[31:45.790 --> 31:52.470]  it's not really doing that. There's also insider abuse that is a problem with these sort of
[31:52.470 --> 31:58.010]  centralized security models. And that is, there are plenty of examples of large banks that do
[31:58.010 --> 32:03.090]  egregious things to abuse the trust of their customers and get away with it with just a slap
[32:03.090 --> 32:11.050]  on the wrist. For example, there is a case where Bank of America took its customers' personal data
[32:11.570 --> 32:16.950]  and created fake checking and savings accounts under the names of the, you know, using the names
[32:16.950 --> 32:21.130]  and social security numbers of their customers, they made fake accounts, and then they proceeded
[32:21.130 --> 32:26.970]  to charge fees on those accounts, which the customers didn't even know existed. And, you know,
[32:26.970 --> 32:32.350]  this caused some scandal, and then they got a fine, which was, you know, maybe, you know, a day's worth
[32:32.350 --> 32:39.570]  of profits. And, and that was that. So, you know, the potential for insider abuse is, unfortunately,
[32:39.570 --> 32:45.790]  there for a centralized network where, basically, you have middlemen between the people and the
[32:45.790 --> 32:51.150]  database, you have the these middlemen who are in a position of power, and so they unfortunately
[32:51.150 --> 32:57.770]  abuse that. Another feature, or, you know, I would say benefit from the point of view of the middleman
[32:57.770 --> 33:02.990]  of being a middleman is that there's little incentive to improve. So if there's a database
[33:02.990 --> 33:10.360]  that holds your bank account balance, right, and, and, for example, you want to do a wire transfer,
[33:11.530 --> 33:16.550]  you need to wait for the middleman to be good and ready to process your wire transfer before
[33:16.550 --> 33:22.330]  you can get it done. So the very fact that we have bank hours, Monday to Friday, nine to five,
[33:22.330 --> 33:28.410]  in an era in which everyone has been used to shopping at 2.30 in the morning from their bed,
[33:28.410 --> 33:32.850]  on their phone, you know, shopping on Amazon to get whatever they want, yet we're still in a,
[33:32.850 --> 33:38.170]  in a situation where fiat money oftentimes requires the services of another human
[33:38.170 --> 33:45.330]  to, to help you do what you need to do. So the decentralized security model of Bitcoin and also
[33:45.330 --> 33:50.950]  Monero is totally different. So in, in these decentralized networks, anyone can join the
[33:50.950 --> 33:56.530]  peer-to-peer network. Anyone can download the Monero code, run it on their computer, and then
[33:56.530 --> 34:03.310]  basically become part of this network, which does the functions of what a bank does. It processes
[34:03.310 --> 34:10.410]  transactions, it keeps track of who owns what, it, it, it keeps track of all this. Each node maintains
[34:10.410 --> 34:16.390]  its own version of the ledger. So in contrast to the centralized security model, where you have a,
[34:16.390 --> 34:20.770]  you know, a master database sitting in the middle with all sorts of firewalls and protections
[34:20.770 --> 34:28.010]  around it to try and defend it from misuse, here each node has its own copy of the ledger. Every
[34:28.010 --> 34:33.710]  node in the Bitcoin network, every node in the Monero network has a database file that contains
[34:33.910 --> 34:40.970]  a record of who sent what to who. In the decentralized security model, it's open source.
[34:40.970 --> 34:45.730]  It would have to be. If, you know, if anyone is able to join the peer-to-peer network, you'd better
[34:45.730 --> 34:50.510]  make your code open source, because otherwise how do you know what you're running? How do you, how do
[34:50.510 --> 34:56.030]  you get people to, you know, put their trust basically into this network unless you publish the code
[34:56.030 --> 35:01.930]  as open source? And so like the Cathedral and the Bazaar, the, the classic open source software
[35:01.930 --> 35:06.910]  development book that contrasts the building of a cathedral, which is a centralized sort of
[35:06.910 --> 35:13.750]  process a la Microsoft, versus the Bazaar, which is just a, you know, farmer's market where everyone
[35:13.750 --> 35:19.910]  is free to come show up and just build something, which would be like the Linux model. This is
[35:19.910 --> 35:27.110]  basically the version, the Linux of money. So really these two situations, fiat versus decentralized
[35:27.110 --> 35:33.170]  money, it's really like Microsoft versus Linux. So the fiat monies would be like Microsoft of money
[35:33.170 --> 35:39.990]  and the decentralized solutions like Bitcoin and Monero are like the Linux of money.
[35:41.070 --> 35:46.150]  Of course, there are downsides to this, just like there are downsides of Linux over Windows, and
[35:46.150 --> 35:52.050]  that's new, but fewer people have heard of it. It's relatively inefficient, at least not the
[35:52.050 --> 35:58.570]  operating system now, but the, the use of FOSS in money is going to be inefficient because you have
[35:58.570 --> 36:03.890]  this decentralized network keeping track of who owns what. So if there's no boss computer, if
[36:03.890 --> 36:09.210]  there's no, you know, like super privileges computer within this peer-to-peer network,
[36:09.210 --> 36:15.250]  then how are you going to decide what the true version is of the database that keeps
[36:15.250 --> 36:26.990]  track of who owns what? So to explain that, currently cryptocurrencies are able to be
[36:26.990 --> 36:33.310]  traded for US dollars and all sorts of fiat currencies, but this used to not be the case.
[36:33.390 --> 36:38.990]  So back in 2009, when the Bitcoin white paper first came out, Bitcoin had zero dollar value.
[36:38.990 --> 36:46.370]  It was just a geek project. It was this, you know, kind of interesting curiosity of a system that
[36:46.370 --> 36:53.130]  purported to make a new form of scarcity that kind of acted like money. But back in 2009,
[36:53.130 --> 36:58.530]  nobody knew that that was actually the case. Nobody knew if this thing would actually work
[36:58.530 --> 37:03.910]  like it said it would work. And so I think it's a good idea if you're new to cryptocurrency to,
[37:03.910 --> 37:10.990]  before you get caught up in the hoopla of, you know, the prices of everything and, you know,
[37:10.990 --> 37:17.430]  God forbid, you start searching cryptocurrency on YouTube and are confronted with, you know,
[37:17.550 --> 37:23.650]  a hundred different channels of people making sensational, you know, hay out of like the latest
[37:23.650 --> 37:28.590]  price movement of this and that currency, and you get caught up in the horse race aspect of all that.
[37:28.690 --> 37:33.390]  Before you get into all that, I would suggest pretending that all of cryptocurrency has zero
[37:33.390 --> 37:40.130]  value, because it'll end up being good for you in the long run, because you'll have a more solid
[37:40.130 --> 37:44.290]  understanding of what's actually going on with this stuff that you're buying and selling.
[37:46.790 --> 37:51.390]  One, Halloween of the year 2008, that is when the Nakamoto white paper was just
[37:51.390 --> 37:59.190]  dropped into existence on a bulletin board, like a discussion board. 2009, January 9,
[37:59.190 --> 38:05.150]  is when the Genesis block, which is the very first block, which is the very first record of
[38:05.150 --> 38:10.470]  who sent what to who in the Bitcoin network, that is when that happened, was in 2009. And since then
[38:10.470 --> 38:16.990]  the network's been going, it's been running 24 hours, 7, 365 ever since. So in the calendar year
[38:16.990 --> 38:25.150]  2009, Bitcoin was operational, but Bitcoin itself, like each Bitcoin unit itself had zero monetary
[38:25.150 --> 38:31.810]  value, because again, it was just a geek project. So I'd like to kind of turn the clock back and
[38:32.370 --> 38:38.430]  summarize how Bitcoin works from that standpoint. Now there are three aspects that you need to
[38:38.430 --> 38:46.770]  get working to create a private form of money. First, you have to have some sense of what is the
[38:46.770 --> 38:53.490]  analogy of a bank account. Second, is you need to have some analogy to what it is to write a check.
[38:53.490 --> 38:57.630]  And third, you need to have some sort of process for that written check,
[38:57.630 --> 39:00.970]  once it's shown to be legitimate, to be processed through the system.
[39:02.910 --> 39:08.290]  So Bitcoin is based on the Secp256k1 elliptic curve, and that's written out here. It's public
[39:08.290 --> 39:12.610]  knowledge what this elliptic curve is, there's nothing secret about it, it's a public standard.
[39:13.170 --> 39:20.630]  It's y squared is congruent to x cubed plus 7 mod this very large prime number. And x and y,
[39:20.630 --> 39:25.150]  usually you think of as being real numbers, like if you think of like high school algebra,
[39:25.150 --> 39:30.550]  and you want to plot this curve, you will make a nice kind of curvy shape out of this if you
[39:31.030 --> 39:37.050]  let n y be real numbers. But in this case, we're restricting x and y to be integers,
[39:37.050 --> 39:42.130]  right? And furthermore, these integers are modulus this prime number, which is basically
[39:42.130 --> 39:48.110]  clock arithmetic. This is saying that 1 o'clock, 13 o'clock, 25 o'clock are all the same,
[39:48.110 --> 39:53.950]  because the number on the clock dial is pointing to the one. So basically, every 12,
[39:53.950 --> 39:59.990]  your counting goes back to zero. So that's the case here, except instead of 12 numbers,
[39:59.990 --> 40:08.090]  you have like this 70 some digit prime number that so you have a clock with just an unfathomable
[40:08.090 --> 40:14.430]  number of numbers on its dial. Alright, so the way to think of this, this x and y is basically
[40:14.430 --> 40:24.010]  you have this, you know, universe sized sheet of grid paper, and on grid paper, you can have x y
[40:24.010 --> 40:31.310]  coordinates that are each integers. And some of the points on this huge, gigantic sheet of grid
[40:31.310 --> 40:38.650]  paper are solutions to this particular elliptic curve. And if one was to try to guess just random
[40:38.650 --> 40:45.970]  combinations of x and y to, to come up with a solution to this, your chances of coming up with
[40:46.330 --> 40:53.070]  a solution to this elliptic curve would be one in that prime numbers probability. So one in 10 to
[40:53.070 --> 40:58.910]  the 70th, I forget the exact number, it's like 10 to the 70th, something on that order. So basically
[40:58.910 --> 41:05.310]  you to come up with a solution on your own is it's basically impossible. But so fortunately,
[41:05.310 --> 41:09.750]  part of the elliptic curve definition is to provide you with a solution called the base
[41:09.750 --> 41:16.370]  point. The base point is a solution x sub b, y sub b, which is known to solve this equation.
[41:16.510 --> 41:21.430]  And furthermore, because of the mathematics of elliptic curves, it's possible if somebody gives
[41:21.430 --> 41:28.110]  you an integer n, it's possible to come up with another point, another solution. So basically,
[41:28.110 --> 41:33.690]  if somebody gives you this base point solution, it's possible to compute another solution to this,
[41:33.690 --> 41:38.070]  which would be another point on this grid paper. And this other point on the grid paper would be
[41:38.070 --> 41:44.770]  n times the base point. And that would be p sub n, which is equal to x sub n, y sub n. Now it's
[41:44.770 --> 41:49.330]  much more complicated. It's not just that you take the base point and you multiply both the x and y
[41:49.330 --> 41:53.890]  coordinates by the number n. It's much, it's more sophisticated than that. But the idea is that
[41:53.890 --> 42:00.410]  if somebody tells you n, you can compute the nth point that is a solution to the elliptic curve.
[42:00.410 --> 42:04.910]  The thing is that it's a one-way function. So if someone tells you n, you can get p sub n.
[42:04.910 --> 42:09.810]  But if someone tells you p sub n, you can't get n. You have to brute force that. And again,
[42:09.810 --> 42:15.250]  to brute force this is a 10 to the 70th chance of getting it right, which means, you know,
[42:15.250 --> 42:23.670]  might as well just not try. And so that's the key to this, is that the public key, which is the
[42:23.670 --> 42:31.330]  location of that base point, is itself the Bitcoin address. Now it's not a number like I'm kind of
[42:31.330 --> 42:37.470]  implying it is here. The number gets translated to a string of letters and numbers in Bitcoin,
[42:38.230 --> 42:43.730]  which is a Bitcoin address. But at the heart of it, that Bitcoin address is representing an x,
[42:43.730 --> 42:53.210]  y coordinate on the secp256k1 elliptic curve. The private key is n. n is the which solution
[42:53.210 --> 43:02.150]  to this elliptic curve is your point. And again, it's a one-way function. So if you give your
[43:02.150 --> 43:11.690]  Bitcoin software the number n, which is basically the seed to generate a public address, then you
[43:11.690 --> 43:18.050]  can get the public address from your private key, but you can't go backwards. So the private key is
[43:18.050 --> 43:23.270]  like basically it functions as an authorized signature to spend. So getting a new Bitcoin
[43:23.270 --> 43:30.610]  account is tantamount to picking a number. What can you do with this elliptic curve point? So
[43:30.610 --> 43:35.870]  big deal, like why make such a big deal out of having a, you know, an x, y point that satisfies
[43:35.870 --> 43:40.930]  this equation? You can do something very useful with it, which is secure message signing. So if
[43:40.930 --> 43:47.130]  you are in possession of a public-private key pair, and you have a message that you want to
[43:47.130 --> 43:51.430]  send to the world, and you want to make sure that everyone in the world knows that that message
[43:51.430 --> 43:56.610]  came from you and only you, this is the way you would do this using elliptic curve cryptography.
[43:56.610 --> 44:01.770]  You would take your message and you would combine it with your private key. So you would have to
[44:01.770 --> 44:08.210]  manipulate those in a routine. So the combination of the message and your private key scrambled up
[44:08.210 --> 44:13.590]  together will produce a signature, which is just a block of bytes that is unique to the combination
[44:13.590 --> 44:18.650]  of the message and the private key. Then as the sender, you would send your message in plain text
[44:19.190 --> 44:23.630]  and you would include with your plain text message the signature, which is this byte block that you
[44:23.630 --> 44:29.970]  generated by processing your message along with the private key. As a recipient now, you get this
[44:29.970 --> 44:34.970]  message and you got the signature from the sender, but now you're not sure if this actually came from
[44:34.970 --> 44:39.610]  the sender or not. So what you do is you take this stuff that you came from the purported sender,
[44:39.610 --> 44:43.610]  and you combine this with a public key, which you know to be from the sender.
[44:44.110 --> 44:47.950]  When you combine all three of those, you get a binary verification result that says, yes,
[44:47.950 --> 44:54.610]  this was a legitimate message from the sender or no, it was not. This type of cryptography gets
[44:54.610 --> 45:01.010]  used all over the internet. For example, it gets used in the HTTPS protocol. In Bitcoin,
[45:02.970 --> 45:08.930]  this was used in a novel way. That is, the sender's public key was used in a further
[45:09.890 --> 45:16.770]  interpretation to be an analogy to a bank account address. So the public key then becomes
[45:16.770 --> 45:22.210]  your Bitcoin address, and the private key becomes the signature that's needed to spend the money
[45:22.210 --> 45:27.630]  that's associated with the public key. So sending Bitcoin means sending a signed message to the
[45:27.630 --> 45:33.210]  Bitcoin network. And it's analogous to a check, as I'm showing here. So knowledge of the private
[45:33.210 --> 45:40.670]  key is tantamount to speech, which is tantamount to money. So finally, once a valid check gets
[45:40.670 --> 45:44.650]  written and signed and sent to the Bitcoin network, how does it get processed? Well,
[45:44.650 --> 45:50.190]  in Bitcoin, the network is controlled by a group of gossipy accountants. So these are computers,
[45:50.190 --> 45:54.070]  again, anyone can join the Bitcoin network simply by downloading the software and putting your
[45:54.070 --> 45:59.230]  computer on this. When you do that, your computer is going to start to download the entire transaction
[45:59.230 --> 46:03.750]  history of everything that's happened in Bitcoin since 2009. It's going to get that from being
[46:03.750 --> 46:08.830]  gossipy with the other Bitcoin computers that it's connected to on the network. And those other
[46:08.830 --> 46:14.730]  computers will willfully share little pieces of the database. And there's redundancy because you
[46:14.730 --> 46:19.170]  want to make sure that a database that you're getting in from your neighbors is correct. So
[46:19.170 --> 46:25.450]  there's checks and balances for that, namely the hash value of the blocks. So that is what is used
[46:25.450 --> 46:32.090]  to guarantee kind of authenticity of the database through the system. So again, miners are peer to
[46:32.090 --> 46:37.550]  peer Bitcoin accountants. What they do is they process blocks. Blocks are lists of valid signed
[46:37.550 --> 46:43.010]  spend messages. It's basically the list, the current list of pending checks to be processed.
[46:43.390 --> 46:48.990]  They get packaged into a collection called the block, and then the block gets added to the
[46:48.990 --> 46:57.090]  chain. And therefore, it's basically one page worth of transactions showing who sent what to
[46:57.090 --> 47:02.310]  who. That's what a block is. Part of what the block has is a nonce. And the nonce is just a
[47:02.310 --> 47:07.170]  little data field within the block, which is free for the miner to choose whatever they want it to
[47:07.170 --> 47:13.710]  be. So the miner can just guess a number and put that in the nonce. Why do they have to do that?
[47:13.710 --> 47:19.810]  Well, one requirement for a block to be considered valid is that the hash of the block,
[47:19.810 --> 47:23.710]  and of course, being DEF CON, I don't have to explain too much. Hash is just a one-way
[47:23.710 --> 47:30.290]  cryptographic hash function with fixed output length. So you take as input a file of any size,
[47:30.290 --> 47:36.390]  and you get as output a block of bytes that is basically a signature that is extremely
[47:36.390 --> 47:42.550]  sensitive to even bit level changes in the input. All right, so the thing is that a block has to be
[47:42.550 --> 47:47.410]  have a hash value that is lower than a difficulty number. The difficulty number is dynamically
[47:47.410 --> 47:54.890]  adjusted so that the number of valid blocks that happened in a 10-minute interval is one on
[47:54.890 --> 48:00.590]  average. So there's a maximum acceptable value for the block hash, which the accountants in this
[48:00.590 --> 48:07.790]  network are busy trying to satisfy for a given block. The computer in the network that does that
[48:07.790 --> 48:12.670]  gets what's called the block reward. That is a Bitcoin payout to the non-solver. And it's
[48:12.670 --> 48:18.550]  important to know that in Bitcoin, and also this is true in Monero, and it's actually quite rare
[48:18.550 --> 48:24.670]  for cryptocurrencies to have this property, is that all of the accounting money, all of the money in
[48:24.670 --> 48:30.350]  existence, came into existence as a payout to a random computer in the network that was helping
[48:30.350 --> 48:35.930]  to secure the accounting and the bookkeeping for that network. None of the block reward in Bitcoin
[48:35.930 --> 48:43.470]  was shunted off and a cut went to a group of people, or to a foundation, or you didn't have
[48:44.370 --> 48:50.290]  a portion of that money got set aside and then used to do marketing or whatever. All of the
[48:50.290 --> 48:54.410]  money went directly to the computers that were actually doing the accounting work
[48:55.050 --> 49:00.290]  for that network. And this is relevant from a regulatory point of view because FinCEN,
[49:00.290 --> 49:07.490]  which is one of the financial regulators in the US, defines a decentralized cryptocurrency as a
[49:07.490 --> 49:11.690]  currency in which the block rewards all go directly to the decentralized network that's
[49:11.690 --> 49:16.790]  doing the accounting. That's important because if you have a chunk of money that's going to a group
[49:16.790 --> 49:21.490]  of people, then that group of people could be considered as being basically the masterminds of
[49:21.490 --> 49:28.590]  the operation. And so they have to be subject to increased regulation in terms of compliance with
[49:29.350 --> 49:37.210]  AML KYC rules. So it's important that the block reward, both from sort of a philosophical and a
[49:37.210 --> 49:42.690]  fairness point of view and also a regulatory point of view, that all of the unit of
[49:42.690 --> 49:50.210]  currency in existence went as a reward to the decentralized network of miners. Conflict
[49:50.210 --> 49:54.850]  resolution. So again, there's no one boss computer that is in charge of having, you know, the
[49:54.850 --> 50:01.350]  correct version of the ledger. So how do we know if you have a conflict in the network, who wins?
[50:01.350 --> 50:06.010]  Well, the answer is that the chain with the more hash power is going to be the one that is deemed
[50:06.010 --> 50:11.590]  to be the authoritative version of the blockchain. So this basically functions as a self-healing
[50:11.590 --> 50:16.830]  mechanism. If there's a discrepancy in the state of the network in two geographically
[50:16.830 --> 50:23.250]  distant parts of the network, basically the tie break will be resolved at the next block that
[50:23.250 --> 50:31.350]  comes, because then that will have, that chain will have more hash power. So at least relative
[50:31.350 --> 50:37.630]  to the state of the blockchain at the time when the chain fork happened.
[50:37.630 --> 50:43.190]  All right, anyway, I'm getting a bit too technical here. So back to the blockchain, it's a, the
[50:43.190 --> 50:48.170]  definition is it's a distributed append-only linked list of blocks with low value hash.
[50:50.070 --> 50:56.310]  And sorry if I've gone too fast here, but there's lots of big concepts here to understand.
[50:56.310 --> 51:01.890]  And if this is all new to you, I would suggest taking the time to, you know, think about it until
[51:01.890 --> 51:07.970]  it makes sense. Because especially before, you know, getting into this circus, which is kind of
[51:07.970 --> 51:15.190]  the cryptocurrency, you know, world of today. So to summarize the Bitcoin white paper, Nakamoto
[51:15.190 --> 51:19.870]  consensus synthesizes digital scarcity. There's a few different kinds of scarcity that we're
[51:19.870 --> 51:23.950]  talking about. One is account level scarcity, that is property rights, the establishment of
[51:23.950 --> 51:29.630]  property rights. How do you know that who owns what in this system of accounting? So that is
[51:29.630 --> 51:35.350]  enforced in Bitcoin by the users, the individual's selection and subsequent protection of an elliptic
[51:35.350 --> 51:40.870]  curve private key. How do we know in aggregate how many Bitcoin there are? How do we know that
[51:40.870 --> 51:45.710]  we're not going to have a situation like we have in fiat banking, where we have a money supply whose
[51:45.710 --> 51:52.530]  quantity is unpredictable over time and is subject to the hopefully wise, but in
[51:52.530 --> 51:59.450]  practice, not always 100% wise decisions of a central group with arbitrary control of that
[51:59.450 --> 52:04.870]  money supply? Well, that is enforced by an open network of peer-to-peer accountants in Bitcoin
[52:05.430 --> 52:09.590]  who are rewarded for behaving consistently with the consensus rule set.
[52:10.150 --> 52:16.810]  What that means is that the majority of nodes in Bitcoin have decided in advance, it's been
[52:16.810 --> 52:23.850]  coded in advance, that the Bitcoins that are given to a miner as a reward is going to decrease over
[52:23.850 --> 52:29.470]  time. And therefore, the total number of Bitcoins that are going to be rewarded to miners in the
[52:29.470 --> 52:37.810]  network is going to be a total sum of 21 million Bitcoin forever. So any new computer that comes
[52:37.810 --> 52:43.610]  onto the network and has a different idea of what the money supply should be, let's say there's a
[52:43.610 --> 52:50.630]  computer that Joe Noob Hacker comes up with their own version of the Bitcoin client
[52:50.630 --> 52:55.310]  in which they program that the block reward is going to go to their personal Bitcoin address,
[52:55.310 --> 52:59.950]  and then they put that on the network. What's going to happen is that it's just going to get ignored
[52:59.950 --> 53:06.910]  because you need majority decisions on this network to be considered correct. That's how
[53:06.910 --> 53:11.510]  you get around the fact that there's no boss computer. Basically, the majority rules becomes
[53:11.510 --> 53:16.970]  the boss, right? And so a rogue computer that's introduced to the network is going to have zero
[53:16.970 --> 53:23.530]  effect on it unless it can manage to get 51% of the hash power, which is expensive and difficult to do.
[53:25.310 --> 53:32.250]  Finally, you have database modification scarcity, which is record permanence. The number
[53:32.250 --> 53:39.390]  of opportunities that the Bitcoin network has to modify what's in the Bitcoin database is severely
[53:39.390 --> 53:44.330]  limited. And it's severely limited by this proof of work mechanism, like the nonce stuff that I was
[53:44.330 --> 53:49.990]  talking about. Basically, when a Bitcoin computer comes up with a nonce that satisfies difficulty,
[53:49.990 --> 53:56.150]  it's coming up with a block of data, that block, which is extremely rare, because its hash value
[53:56.150 --> 54:01.570]  is arbitrarily low. It's got a whole bunch of zeros in front of it, and then numbers after that,
[54:01.570 --> 54:06.730]  which does not really happen if you just have randomly generated blocks. If you have randomly
[54:06.730 --> 54:11.530]  generated blocks, then you would have random numbers for the hash function. But every single
[54:11.530 --> 54:18.550]  block in the Bitcoin blockchain, and also this is true in Monero, has a low hash rate, has a low
[54:18.550 --> 54:23.930]  hash number associated with each block. And so that makes each little piece of data that gets
[54:23.930 --> 54:29.410]  added to the blockchain a rare piece of data. It took a lot of trial and error effort. In other
[54:29.410 --> 54:34.610]  words, it took a lot of proof of work to get that piece of data added to the blockchain. And so,
[54:34.610 --> 54:40.210]  as a result, it's extraordinarily difficult to make modifications to that database, especially
[54:40.210 --> 54:45.730]  as time goes on, and more proof of work gets piled on top of the older transactions. It becomes near
[54:45.730 --> 54:55.370]  impossible to modify older transactions. Okay, so how is Monero's features of scarcity? How do
[54:55.370 --> 55:03.410]  they differ from Bitcoin's? Probably the most important, I would say, from a assessment point
[55:03.410 --> 55:08.770]  of view when assessing, you know, is Monero something worth considering, given that Bitcoin
[55:08.770 --> 55:15.250]  was there first, and it has the largest network. Currently, it has the largest, you know, market
[55:15.250 --> 55:23.230]  share, the largest mind share, the largest network value. But if you look at Monero, it is not
[55:24.310 --> 55:30.790]  a code fork of Bitcoin. So most all of the cryptocurrencies in existence today simply did
[55:30.910 --> 55:35.970]  a copy-paste of Bitcoin's code, and then changed a few little things. And that, you know, they
[55:35.970 --> 55:40.790]  said, oh, I like this about Bitcoin, I don't like that about Bitcoin, made a few oftentimes
[55:40.790 --> 55:45.550]  trivial changes to the code, and then published that and call it your own cryptocurrency.
[55:46.190 --> 55:56.030]  And because we're in a time in which the, I would say, the, I guess, the sophistication level
[55:56.030 --> 56:02.570]  on a dollar-weighted basis in the crypto market is rat low. It's basically like the
[56:03.130 --> 56:07.910]  early days of the dot-com bubble, in which the internet was new. And because the internet was
[56:07.910 --> 56:13.090]  new, it was like, you know, there's all sorts of technological utopia talk going on about how the
[56:13.090 --> 56:19.290]  internet was going to revolutionize everything. And as a result, because you had basically,
[56:19.290 --> 56:24.310]  you know, a bunch of geeks who understood how the internet worked, and a bunch of normies who had
[56:24.310 --> 56:29.550]  really no idea what even email was. So you had the situation where you had, you know, stupid idea
[56:29.550 --> 56:36.390]  plus internet equals sexy company. So you'd have things like pets.com, which, in which the business
[56:36.390 --> 56:43.210]  model was to, you know, FedEx 50-pound bags of dog food to people. But they were using the internet
[56:43.210 --> 56:49.050]  to get the orders in for these dog food orders. And so therefore, this was just like a hot
[56:49.050 --> 56:53.430]  company back in the early days of the internet. It's funny for us to look back at that and kind
[56:53.430 --> 56:58.130]  of laugh at that. But we are in exactly the same situation now with cryptocurrencies, in which
[56:58.130 --> 57:05.590]  stupid idea plus a little bit of blockchain buzzwords equals hot new cryptocurrency. And
[57:06.650 --> 57:13.650]  that's enough to get a bunch of people who have basically profits in mind above any sort of
[57:13.650 --> 57:21.150]  technological benefit to get in on a bandwagon. So anyway, one criteria that one can use to
[57:21.150 --> 57:27.570]  whittle down the subset of cryptocurrencies that are worth considering are this. Is it simply
[57:27.770 --> 57:32.710]  a Bitcoin fork? How much original intellectual effort went into the creation of this other
[57:32.710 --> 57:38.470]  cryptocurrency? In Monero, it was started from scratch. It has its own separate code base. In
[57:38.470 --> 57:43.890]  fact, it uses a completely different elliptic curve than Bitcoin. So Monero uses ED25519.
[57:43.890 --> 57:50.970]  That is the very XY points on this gigantic sheet of grid paper, which is fundamental to how the
[57:50.970 --> 57:56.570]  cryptocurrency works. That very equation is different in Monero than it is in Bitcoin.
[57:56.650 --> 58:02.330]  So this is a form of technical hedging to the extent that the elliptic curve used in Bitcoin
[58:02.330 --> 58:07.170]  may or may not have weaknesses associated with it. This is a form of technical hedging in which
[58:07.170 --> 58:12.390]  Monero has chosen deliberately a different elliptic curve. In Monero, there are two forms of
[58:12.390 --> 58:17.350]  private keys. There's a spend key and a view key. The spend key works like the Bitcoin private key.
[58:17.450 --> 58:21.790]  So if you know the spend key, you are in complete control of your account and you can see everything
[58:21.790 --> 58:27.010]  that goes on with it. In contrast to Bitcoin, there's also a view key in Monero. In Monero,
[58:27.010 --> 58:35.010]  the view key is used to basically see details of your account. So by default in Monero,
[58:35.010 --> 58:41.190]  lots of the details of transactions are encrypted because by default, the details of transactions
[58:41.190 --> 58:45.410]  are nobody's business except for the people who were involved in the transaction. It's their
[58:45.410 --> 58:53.890]  business. So in Monero, there is a public blockchain, which everyone in the Monero ecosystem
[58:53.890 --> 58:59.990]  gets if they run the Monero software, but many details of this blockchain are encrypted.
[59:00.410 --> 59:06.110]  Because by default, a random person downloading the Monero blockchain, it's not their business
[59:06.800 --> 59:12.690]  who sent what to who, like all the details. They can know very high level details about what's
[59:12.690 --> 59:17.810]  going on, but why is it their business to know exactly who sent what to whom and how much they
[59:17.810 --> 59:25.110]  spent? So in Monero, this necessitates the use of two different keys. There's a spend key and a
[59:25.110 --> 59:29.910]  view key. Those are both private keys. All right, in Monero, the address space is larger. So we're
[59:29.910 --> 59:36.730]  talking about 10 to the 76 different addresses to choose from in Monero versus 10 to the 60th
[59:36.730 --> 59:43.070]  in Bitcoin. This means that there is more security in terms of the birthday problem. So
[59:43.070 --> 59:48.250]  when one is choosing a cryptocurrency account, one is simply picking a point on this grid paper
[59:48.250 --> 59:53.310]  and calling it your own. When you do that, you have to consider what is the risk that somebody
[59:53.310 --> 59:57.450]  else in the world is going through this same process and picking a random point on this grid
[59:57.450 --> 01:00:02.730]  paper. And what's the chance that they pick the point that I picked? If they pick the point that
[01:00:02.730 --> 01:00:07.690]  I picked, then they will know the private and public keys for that elliptic curve point. Therefore,
[01:00:07.690 --> 01:00:11.750]  I'm going to be basically sharing my money with a stranger somewhere else in the world.
[01:00:12.550 --> 01:00:18.430]  That is a possibility. So in that sense, there is security by obscurity in cryptocurrencies,
[01:00:18.430 --> 01:00:23.690]  but that is mitigated by the fact by the vast number of addresses that are possible.
[01:00:23.710 --> 01:00:28.430]  And there is an even more vast number of addresses in Monero than there are in Bitcoin by
[01:00:28.430 --> 01:00:36.970]  10 to the 16th, that many times more addresses in Monero. The drawback of this is that you have a
[01:00:36.970 --> 01:00:43.130]  less user-friendly experience because the address lengths in Monero are long. They're
[01:00:43.130 --> 01:00:49.710]  very long strings of numbers and letters. The emission schedule is different in Monero
[01:00:49.710 --> 01:00:55.090]  relative to Bitcoin. So in Monero, it's continually decreasing. There's not a four-year halvening.
[01:00:55.510 --> 01:01:02.190]  So in Bitcoin, every 210,000 blocks, the miner reward that goes out to each miner who
[01:01:02.190 --> 01:01:07.630]  successfully adds a block to the network gets cut in half. That means every four years,
[01:01:07.630 --> 01:01:11.970]  if you're a Bitcoin miner, there is a date circled in red that's coming up sometime in
[01:01:11.970 --> 01:01:17.930]  the next four years in which your income from helping contribute to the Bitcoin ecosystem gets
[01:01:17.930 --> 01:01:21.830]  cut in half. And so from a business point of view, if you're doing mining for a business,
[01:01:21.830 --> 01:01:29.470]  it's a rather disruptive thing. And this is something in which Monero has basically looked
[01:01:29.470 --> 01:01:35.610]  at the granddaddy cryptocurrency and kind of thought about what they're doing and maybe trying
[01:01:35.610 --> 01:01:41.030]  something a little different that might help matters a bit. And so in Monero, the emission
[01:01:41.030 --> 01:01:49.350]  is continually decreasing. So we are spared from this drama in Bitcoin of having every four year,
[01:01:49.730 --> 01:01:58.210]  a large disruption thrown into the mining ecosystem. There's another form of unwanted
[01:01:58.210 --> 01:02:05.290]  scarcity, and that is future miner rewards. So as I mentioned before, all the computers in the
[01:02:05.290 --> 01:02:11.690]  Bitcoin network and also in the Monero network are programmed with a understanding of how big
[01:02:11.690 --> 01:02:18.670]  is the reward going to be to each computer over time. So now and into the future, how big is that
[01:02:18.670 --> 01:02:25.390]  reward going to be? In Bitcoin, this reward is predefined to get cut in half every four years,
[01:02:25.390 --> 01:02:34.050]  as I just explained. What that means is that in, say, 40 years from now, the Bitcoin reward is going
[01:02:34.050 --> 01:02:39.730]  to be, it's going to have halved four times. So one half to the 10th power, that's about a factor
[01:02:39.730 --> 01:02:45.330]  of a thousand. So the Bitcoin reward to miners in 40 years time is going to be one one thousandth
[01:02:45.330 --> 01:02:52.190]  of what it is now. So this brings up a concern, like are miners in the Bitcoin network in that
[01:02:52.190 --> 01:02:55.870]  length of time from now, are they going to be able, are they going to find that to be enough
[01:02:55.870 --> 01:03:00.670]  incentive to keep working for the network? There's some academic research that shows that
[01:03:00.670 --> 01:03:06.010]  the solution that Bitcoin has come up with, which is to institute a fee market in which the people
[01:03:06.010 --> 01:03:13.650]  who transact end up chipping in and basically engaging in a auction-like process to bid up
[01:03:13.650 --> 01:03:20.670]  the fee that they offer with the transaction in an effort to get their transaction into the next block.
[01:03:20.670 --> 01:03:26.730]  But that idea may not be enough to incentivize miners in the future. So in Monero, what we have
[01:03:26.730 --> 01:03:31.490]  is what we call the tail emission. That is that the block reward in Monero is never going to be
[01:03:31.490 --> 01:03:37.610]  less than 0.3 Monero per minute. And what this means is that over time, the number of Monero
[01:03:37.610 --> 01:03:44.650]  in existence is going to linearly increase forever. And so this gets kind of portrayed as
[01:03:44.650 --> 01:03:54.330]  quote-unquote infinite emission by people who are not thinking about it very, I would say, fairly.
[01:03:54.450 --> 01:04:01.850]  But the reason is that the absolute value of emission is not relevant in any macroeconomic
[01:04:01.850 --> 01:04:06.990]  theory. Any macroeconomic theory that takes into account what the money supply is and the effects
[01:04:06.990 --> 01:04:13.130]  of changes in that money supply in the macroeconomy will look at the percentage increase of that money
[01:04:13.130 --> 01:04:18.090]  supply. So it's not the absolute value of U.S. dollars increasing that's relevant, it's the
[01:04:18.090 --> 01:04:24.790]  percentage increase in U.S. dollars that's relevant. And if you have a money supply like Monero that is
[01:04:24.790 --> 01:04:31.450]  increasing linearly over time, what that means is that if you look at the percentage increase of the
[01:04:31.450 --> 01:04:38.070]  money supply, every year it's going to get smaller and smaller. Because every year the money supply
[01:04:38.070 --> 01:04:43.430]  is going to expand by a fixed constant amount, which is what linear expansion just means. Every
[01:04:43.430 --> 01:04:49.010]  year is a constant amount of Monero is going to be added, but that's going to be added to a
[01:04:49.010 --> 01:04:55.250]  pre-existing base of Monero that is going to be growing. Therefore the inflation rate on percentage
[01:04:55.250 --> 01:05:00.870]  terms is going to be decreasing and asymptotically going to zero. Which means that that is the
[01:05:00.870 --> 01:05:06.770]  relevant input to any macroeconomic theory that uses the expansion of the money supply. An asymptotically
[01:05:06.770 --> 01:05:14.110]  zero inflation rate. And so to claim that identically zero inflation rate is significantly
[01:05:14.110 --> 01:05:20.370]  different. It's a totally different situation that an asymptotically zero inflation rate is is silly.
[01:05:21.310 --> 01:05:27.310]  It's just not factual. It is easy for normies to understand that 21 million bitcoiners
[01:05:27.310 --> 01:05:32.350]  is the only amount that's ever going to be created, but it leads to a bit of a laziness of thinking in
[01:05:32.350 --> 01:05:39.430]  which one comes to this false conclusion that one must have a identically zero inflation rate
[01:05:39.430 --> 01:05:46.090]  in order to be macroeconomically negligible. What do we gain in Monero for having this
[01:05:46.090 --> 01:05:51.410]  tail emission? We know in Monero that minor incentives are going to be there in perpetuity.
[01:05:51.410 --> 01:05:59.130]  In Monero we do not have a civil war over who is going to be paying for minor rewards in the future.
[01:05:59.130 --> 01:06:03.210]  Now this sounds like it might be kind of a trivial and academic thing but this actually happened in
[01:06:03.210 --> 01:06:08.630]  bitcoin. There is a civil war that was partly caused by a disagreement over who is going to
[01:06:08.630 --> 01:06:16.830]  pay for the network's operation in the future. So this whole position in bitcoin that we are
[01:06:16.830 --> 01:06:23.010]  going to get the users of bitcoin, the transactors of bitcoin, to engage in this competition in a fee
[01:06:23.010 --> 01:06:28.770]  market to get the transactions processed in the next block. The viability of that was debated
[01:06:28.770 --> 01:06:35.270]  within bitcoin and was one of the factors leading to the divorce of bitcoin versus bitcoin cash.
[01:06:36.410 --> 01:06:42.510]  Now if you think about it, who wants to go to ebay to try and get a financial
[01:06:42.510 --> 01:06:47.910]  transaction going? Who wants to engage in a bidding process to try and just
[01:06:48.910 --> 01:06:55.690]  send ten dollars to your buddy for lunch? But anyway, we avoid all that again in Monero by
[01:06:55.690 --> 01:07:01.330]  having this tail emission. So here's some charts that show what I'm talking about. This is actually
[01:07:01.330 --> 01:07:08.030]  empirical data on the left. So to the left of the present, and I'm looking at a timescale of 2009
[01:07:08.030 --> 01:07:12.370]  which is when the bitcoin white paper started, and I'm going out 15 years into the future to the year
[01:07:12.370 --> 01:07:20.050]  2035. This is the amount of the number of coins that will be in circulation. So in bitcoin there
[01:07:20.050 --> 01:07:24.670]  have been about roughly 18 million bitcoin created and there are going to be three million more
[01:07:24.670 --> 01:07:31.150]  created for the rest of time. So you can see to the left this is what the money supply has looked
[01:07:31.150 --> 01:07:36.930]  like in bitcoin, and to the right of this in gray we can reliably predict in the future what the
[01:07:36.930 --> 01:07:42.370]  future money supply is going to be, because again the miners in the network are kind of programmed
[01:07:42.370 --> 01:07:49.870]  with that information in advance. The same is in Monero. So in Monero we also have a predefined
[01:07:49.870 --> 01:07:55.930]  schedule for what the coin emission is going to be over time. And so on to the left of August 2020
[01:07:55.930 --> 01:08:01.970]  you see what has actually happened in Monero. And this curve here, it looks so smooth and perfect it
[01:08:01.970 --> 01:08:05.830]  looks like it's a theoretical line, but this is actually empirical data that I'm showing on the
[01:08:05.830 --> 01:08:11.670]  left. This is what actually happened in terms of emission in the Monero blockchain up to now. And
[01:08:11.670 --> 01:08:17.450]  then in the future you can see the tail emission in Monero shows up as this very slight
[01:08:18.010 --> 01:08:23.530]  curve, a straight line that's that's slightly tilted up to the right. That's the tail emission
[01:08:23.530 --> 01:08:29.350]  which there's a going to be a fixed number of Monero dedicated to be given out to miners every
[01:08:29.350 --> 01:08:35.590]  year in perpetuity. This differs from bitcoin in which the 21 million limit is a hard limit.
[01:08:35.610 --> 01:08:40.270]  Once the number of bitcoins emitted gets close to the 21 million that's going to go to zero.
[01:08:40.270 --> 01:08:44.590]  And again they have a problem to deal with, which is how do they guarantee that the miners in the
[01:08:44.590 --> 01:08:49.130]  far future are going to be incentivized to keep using their electricity and their
[01:08:49.130 --> 01:08:56.430]  silicon to keep supporting their network. If we take the time derivative of this last chart,
[01:08:56.430 --> 01:09:01.610]  you get year-over-year supplied inflation. So what I'm doing is I'm taking what is the supply
[01:09:01.610 --> 01:09:07.850]  of a currency today versus what is the supply of that currency one year ago on the same day.
[01:09:07.850 --> 01:09:13.550]  And I'm showing what you get for Monero, bitcoin, and also gold. So the World Gold Council keeps
[01:09:13.550 --> 01:09:19.970]  track of its estimate of how much above ground gold there is in the world every year. And you
[01:09:19.970 --> 01:09:25.650]  can see here that the amount of gold in above ground that's known to exist and has been processed
[01:09:25.650 --> 01:09:34.550]  and refined into bullion in jewelry, that has been increasing at a pretty constant rate of about 1.8%
[01:09:34.550 --> 01:09:42.250]  per year. So if you think of sound money as being something that is gold-like in that there is no
[01:09:42.250 --> 01:09:47.490]  entity that can artificially create gold out of nothing, like you have to do the work of mining
[01:09:47.490 --> 01:09:53.770]  it yourself, then even gold inflates at a rate of 1.8% per year. So if you use that as kind of
[01:09:53.770 --> 01:09:58.810]  your litmus test for defining something called sound money. So sound money, a working definition
[01:09:58.810 --> 01:10:07.270]  of sound money would be something, a source of scarcity that inflates by a level of about 1.8%
[01:10:07.270 --> 01:10:11.970]  per year or less. So that would be kind of a working definition of what sound money is.
[01:10:12.250 --> 01:10:18.350]  So as you can see, Bitcoin and Monero both are coming up on a new area of scarcity. Starting
[01:10:18.350 --> 01:10:24.230]  now, here in 2020, going into the future, the inflation rates of both Bitcoin and Monero are
[01:10:24.230 --> 01:10:30.690]  going to be lower than gold. And so these will satisfy that definition of sound money. It's
[01:10:30.690 --> 01:10:37.590]  like a digital form of sound money. In contrast to this, we have a kind of scary situation with
[01:10:37.590 --> 01:10:43.710]  the money supply of the U.S. dollar, for example. This is again, money zero maturity, which is the
[01:10:43.710 --> 01:10:49.890]  broadest measure of liquid money in the U.S. And this is looking at year-over-year supply inflation,
[01:10:49.890 --> 01:10:55.750]  how much U.S. dollars have there been versus how much U.S. dollars have there been a year ago at
[01:10:55.750 --> 01:11:02.470]  the same date. You can see as a result of the pandemic, this has spiked up recently to about 30%.
[01:11:07.880 --> 01:11:13.280]  Now, I showed a version of this chart just six months ago at a keynote talk that I gave at
[01:11:13.880 --> 01:11:19.360]  the Critical Decentralization Cluster at 36C3 in Leipzig, Germany. You might have seen the
[01:11:19.360 --> 01:11:26.820]  Monero Means Money documentary film that was made out of that. And relative to that, which
[01:11:26.820 --> 01:11:33.200]  was just six months ago, and just before the pandemic hit, I had to adjust the vertical
[01:11:33.200 --> 01:11:38.560]  axis here. It used to go to 20% now because I had to adjust it to 30% to fit fiat.
[01:11:41.020 --> 01:11:45.400]  Again, it's a scary situation. Hopefully it works out for the best, because if it doesn't,
[01:11:45.400 --> 01:11:52.660]  there's going to be a lot of suffering by humanity. But the situation is what it is.
[01:11:52.900 --> 01:12:00.440]  And for those people looking for a source of scarcity that is gold or gold-like, this is what
[01:12:00.440 --> 01:12:04.640]  you're looking at. You have gold and you have new digital alternatives in the form of Bitcoin
[01:12:04.640 --> 01:12:09.940]  and Monero. There's another form of unwanted scarcity I want to talk about, and that's
[01:12:09.940 --> 01:12:15.280]  mining hardware. So in the Bitcoin white paper, Satoshi used the phrase one CPU, one vote. What
[01:12:15.280 --> 01:12:20.520]  that means is that this is the idea that the miner reward should scale with miner expense.
[01:12:20.540 --> 01:12:26.240]  So you want the probability that a miner computer gets the Bitcoin reward. You want that to be
[01:12:26.240 --> 01:12:31.300]  proportional to basically how much money and effort that they spent into buying the computer
[01:12:31.300 --> 01:12:36.260]  and paying for the electricity to run the computer and so on. You don't want a situation in which
[01:12:36.260 --> 01:12:41.360]  somebody with a whole bunch of wealth can come up with a way to do mining much more efficiently
[01:12:41.360 --> 01:12:46.300]  than a little guy who doesn't have much wealth. And yet that's exactly the situation that has
[01:12:46.300 --> 01:12:53.120]  come to pass in Bitcoin, and that is because of the economics of silicon manufacture. Silicon
[01:12:53.120 --> 01:12:57.660]  economies of scale destroy the linearity between miner expense and miner reward,
[01:12:57.660 --> 01:13:03.200]  and that is because you have different pieces of silicon with different capabilities and
[01:13:03.200 --> 01:13:08.840]  different specializations. CPUs, like the things that run your computer or your cell phone, those
[01:13:08.840 --> 01:13:15.140]  are general purpose computing devices and they're made to be pretty fast at doing everything.
[01:13:15.140 --> 01:13:20.940]  Whereas ASICs are custom pieces of silicon that are custom designed to do one thing and do that
[01:13:20.940 --> 01:13:26.860]  one thing extremely efficiently. So it turned out that in Bitcoin, the proof of work algorithm
[01:13:26.860 --> 01:13:32.580]  that's used is simple enough to encode on a piece of silicon and have a dedicated piece of silicon
[01:13:32.580 --> 01:13:37.460]  that does nothing but the proof of work in Bitcoin. So basically, if you have $50 million,
[01:13:37.460 --> 01:13:42.500]  you can make a silicon fabrication lab and you hire a bunch of PhD electrical engineers to
[01:13:42.500 --> 01:13:49.940]  make this thing happen. And then you can basically print out chips that do nothing but the Bitcoin
[01:13:49.940 --> 01:13:56.000]  algorithm and do that more efficiently than anybody else in the world. And so currently,
[01:13:56.000 --> 01:14:02.340]  that capability exists really on an economically competitive basis, really only in China.
[01:14:02.520 --> 01:14:08.460]  And so at the current date, Bitcoin mining is a Chinese-dominated oligopoly. If you're in Shenzhen
[01:14:08.460 --> 01:14:20.940]  and you've got about $50 million, you mine Bitcoin the fastest. Otherwise, you're out of the game.
[01:14:20.940 --> 01:14:25.900]  If you are just a regular guy with a CPU, just a gaming computer at home, and you want to
[01:14:25.900 --> 01:14:31.260]  join that to the Bitcoin network and try to see if you can maybe hit a block, maybe you can get
[01:14:31.360 --> 01:14:37.560]  a reward, you have a higher chance of winning the lotto than getting a Bitcoin block reward.
[01:14:37.560 --> 01:14:44.080]  It's just not worth your time. It's not worth your time. It's not worth the extra electricity
[01:14:44.080 --> 01:14:48.520]  that your computer is going to eat while it's trying to come up with blocks to satisfy the
[01:14:48.520 --> 01:14:57.300]  Bitcoin network. This has the unfortunate effect of centralization. So now, Bitcoin mining is
[01:14:57.300 --> 01:15:03.200]  effectively a Chinese oligopoly. You need to be one of these chip fab makers, or you need to be
[01:15:03.200 --> 01:15:09.460]  buddies with one of the chip fab manufacturers to get a realistic shot of amassing enough Bitcoin
[01:15:09.460 --> 01:15:14.000]  hash power to make a difference, to have a realistic shot of getting a block. So in Monero,
[01:15:14.000 --> 01:15:18.760]  again, we've looked at the situation in Bitcoin and asked what can we do, what is going
[01:15:18.760 --> 01:15:25.320]  maybe not so great over there, and try to come up with solutions to mitigate that. So in Monero,
[01:15:25.320 --> 01:15:31.240]  what we've done is we have evolved the proof-of-work algorithm to keep small independent miners viable.
[01:15:31.640 --> 01:15:36.020]  So this is quite remarkable for any cryptocurrency, but if you look at Monero's proof-of-work since
[01:15:36.020 --> 01:15:41.460]  2018, it has changed four times. And each of these four times has required a hard fork.
[01:15:41.460 --> 01:15:48.260]  So there's been an enormous level of effort that's gone into this. First, you need to come
[01:15:48.260 --> 01:15:52.100]  up with these algorithms, you need to notice that they're ASICs, you have to have a community
[01:15:52.100 --> 01:15:57.560]  consensus that this is a problem, you have to have a community that's willing to all upgrade their
[01:15:57.560 --> 01:16:03.220]  Monero clients to keep up with the latest changes, because these changes were all hard forks.
[01:16:03.220 --> 01:16:10.240]  That is, they were not backwards compatible. So it's a testament to kind of the persistence
[01:16:10.240 --> 01:16:15.820]  and really the unanimity of the Monero community in having this goal of keeping
[01:16:18.480 --> 01:16:24.600]  a situation of decentralization really viable in the real world, not just a theoretical thing,
[01:16:24.600 --> 01:16:29.360]  but something that's actually decentralized in practice, with small independent miners
[01:16:29.360 --> 01:16:35.460]  having a shot at getting a block reward in Monero. This chart is showing data to support that
[01:16:35.460 --> 01:16:41.620]  narrative. So here I'm looking at 2014 to the present, and this is a chart of the Monero
[01:16:41.620 --> 01:16:47.600]  network difficulty. So again, previously I talked about how Bitcoin works, there's a number called
[01:16:47.600 --> 01:16:53.600]  the difficulty, which is a number under which blocks have to have a hash that's under in order
[01:16:53.600 --> 01:17:03.060]  to be considered a viable block. So as more computers get onto the network, you can see that
[01:17:03.060 --> 01:17:12.840]  difficulty will increase. So through version 0.11 of Monero, the proof of work was Kryptonite.
[01:17:12.920 --> 01:17:18.860]  And so you can see that the difficulty was proceeding along for several years, and then
[01:17:18.860 --> 01:17:24.120]  now there's a spike upwards in the difficulty. And this is basically interpreted as ASICs coming
[01:17:24.120 --> 01:17:31.840]  onto the system. So basically, there were chip manufacturers who looked at the Monero proof of
[01:17:31.840 --> 01:17:37.040]  work, figured out how to program the Monero proof of work into a custom piece of silicon, make that
[01:17:37.040 --> 01:17:41.760]  piece of silicon, plug it into the network, and then start getting a disproportionate share of
[01:17:41.760 --> 01:17:46.800]  block rewards from Monero. So once that happened, there was some alarm in the Monero community.
[01:17:47.720 --> 01:17:52.680]  There were signs that, you know, ASICs were going to dominate the network and have a situation in
[01:17:52.680 --> 01:17:56.460]  which you have to have connections with a bunch of buddies in Shenzhen in order to be able to
[01:17:56.460 --> 01:18:02.800]  have a realistic shot at mining. And so work commenced on a variant of the Kryptonite proof of
[01:18:02.800 --> 01:18:10.080]  work. So Kryptonite v2 was developed and tested and then deployed on the network in early 2018.
[01:18:10.240 --> 01:18:15.620]  When that happened, you can see the difficulty took a nosedive. And that is because all these
[01:18:15.620 --> 01:18:21.080]  ASICs that were previously viable in collecting a lot of the block reward were now shut out
[01:18:21.080 --> 01:18:26.940]  because the proof of work changed on them. So that proceeded for several months. And that's
[01:18:26.940 --> 01:18:30.780]  the lead time in silicon design, is that you need, there's like a several month lead time
[01:18:30.780 --> 01:18:35.660]  from the time that you design an ASICs to the time that you actually fabricate it in enough
[01:18:35.660 --> 01:18:40.440]  quantity to make a big dent on the network. So several months later, there was another upward
[01:18:40.440 --> 01:18:46.080]  spike in the difficulty. So that was ASICs coming back online. So Kryptonite was patched again,
[01:18:46.080 --> 01:18:51.600]  to again, preserve the network viability of getting block rewards for the little guy.
[01:18:51.620 --> 01:18:55.860]  So again, there was another hard fork in late 2018 to change to Kryptonite v3.
[01:18:55.940 --> 01:19:00.900]  That worked for another few months. Then the difficulty spiked up again. And then finally,
[01:19:00.900 --> 01:19:04.960]  there was Kryptonite R, well, not finally, almost finally, there was Kryptonite R introduced in early
[01:19:04.960 --> 01:19:12.020]  29. Then kind of mercifully, there was this, there's this silence from the ASICs manufacturer,
[01:19:12.020 --> 01:19:17.520]  which was a nice sign to see in the Monero community. And then finally, there was a
[01:19:17.520 --> 01:19:22.900]  kind of a revolutionary change in the proof of work algorithm to RandomX, which uses
[01:19:22.900 --> 01:19:29.820]  a randomly generated computer algorithm that must be executed in order to do the proof of work.
[01:19:29.820 --> 01:19:34.020]  It uses not only integer operations, but even floating point operations. And so it's a very
[01:19:34.020 --> 01:19:44.020]  interesting example of a proof of work algorithm, for which the customized piece of silicon that
[01:19:44.020 --> 01:19:50.000]  will do RandomX the best happens to be, for example, an AMD Ryzen Threadripper, which is
[01:19:50.000 --> 01:19:55.800]  something that you can buy on Amazon. So it's basically commodity hardware is the most efficient
[01:19:55.800 --> 01:20:01.740]  at doing the Monero proof of work. It's not something that you have to, you know, go on
[01:20:01.740 --> 01:20:07.600]  Alibaba to try and get for yourself, and then suffer through like the very many shenanigans
[01:20:07.600 --> 01:20:12.640]  that are associated with having a centralized mining operator. So for example, these ASIC
[01:20:12.640 --> 01:20:18.160]  manufacturers do not have the most honest reputation, shall we say, of immediately shipping
[01:20:18.160 --> 01:20:23.600]  their product out once a customer buys an ASIC. There tends to be a several month lag due to,
[01:20:23.600 --> 01:20:31.160]  you know, testing and other very unexplainable reasons that their shipped product gets delayed.
[01:20:31.160 --> 01:20:35.760]  And why would a ASIC manufacturer want to delay shipment of product that's been paid for?
[01:20:35.760 --> 01:20:42.900]  Well, they want to test the thing by running, by basically collecting Bitcoin block rewards with
[01:20:42.900 --> 01:20:47.580]  their customer's hardware before they send it out, right? So that's basically the shenanigans that
[01:20:47.580 --> 01:20:53.580]  one has to deal with when one does not have a commodity piece of computer hardware to do proof
[01:20:53.580 --> 01:21:00.840]  of work with. And so since RandomX has gone into effect, CPUs have once again been dominating the
[01:21:00.840 --> 01:21:07.000]  network. Arguably, that was also the case with Kryptonite R, but we see that there is basically
[01:21:07.220 --> 01:21:14.240]  a regime change in the proof of work. The metric of difficulty became apples and oranges once
[01:21:14.240 --> 01:21:21.080]  RandomX came in. So this increase in difficulty is not to be interpreted as meaningful. It's just
[01:21:21.080 --> 01:21:29.840]  what is meant by a hash now is different in RandomX versus Kryptonite. So there's a one-time
[01:21:29.840 --> 01:21:35.180]  jump in the difficulty, which is meaningless. But since RandomX went in, it's been all signs
[01:21:35.180 --> 01:21:41.420]  have been that there have been only CPUs on the network. Another form of unwanted scarcity is
[01:21:41.420 --> 01:21:47.520]  access to layer one. So Bitcoin's one megabyte block limit caused a project fork. So there is a
[01:21:47.520 --> 01:21:53.620]  controversy as to whether this hard-coded line of code, which Satoshi had put into the Bitcoin
[01:21:53.620 --> 01:21:59.620]  client, saying that blocks have to be no larger than one megabyte in size, which is something that
[01:21:59.620 --> 01:22:06.420]  Satoshi did as a kludgy way of preventing the network from getting spammed. That has remained
[01:22:06.420 --> 01:22:15.840]  in there. The decision has been made, at least in the dominant implementation of Bitcoin,
[01:22:17.640 --> 01:22:22.940]  post-divorce of Bitcoin, the most dominant one has preserved this one megabyte block limit,
[01:22:22.940 --> 01:22:30.020]  subject to very marginal level changes like Segwit, which actually made it like 1.3,
[01:22:30.020 --> 01:22:35.700]  whatever. The idea that there's going to be a hard block limit that doesn't change has
[01:22:35.700 --> 01:22:41.620]  survived in Bitcoin. And so you can see the transactions per day here. And I'm showing
[01:22:41.620 --> 01:22:46.220]  an exponential scale. So this is 10 transactions a day on the bottom to a million transactions a
[01:22:46.220 --> 01:22:53.760]  day on the top. In Bitcoin, you can see that just like the mining reward asymptotically hits a
[01:22:53.760 --> 01:22:58.660]  ceiling, the transactions per day in Bitcoin have also asymptotically hit a ceiling. And that is due
[01:22:58.660 --> 01:23:03.900]  to this one megabyte block limit. Again, in Monero, we look at what's happening in the dominant
[01:23:04.780 --> 01:23:09.660]  granddaddy cryptocurrency and give it all due respect as being the pioneer and the first to
[01:23:09.660 --> 01:23:17.520]  exist. But we're on a case-by-case basis looking at what could be done as an alternative solution
[01:23:17.520 --> 01:23:23.340]  to some of these issues. And so in Monero, we use what is called an adaptive block weight.
[01:23:23.400 --> 01:23:27.620]  It used to be called the adaptive block size, but now there were modifications to the algorithm. So
[01:23:27.620 --> 01:23:33.220]  now it's called the adaptive block weight. But the basic idea is that there is no hard-coded
[01:23:33.220 --> 01:23:38.280]  limit on the size of the Monero block. It dynamically adjusts along with the network
[01:23:38.280 --> 01:23:45.260]  so that it can dynamically expand if there is organic growth in the demand for Monero transactions,
[01:23:45.260 --> 01:23:50.860]  which as you can see from this past history of transactions per day, you can make a pretty good
[01:23:50.860 --> 01:23:56.060]  argument that the trend line of this transaction per day is on the way up. It's unlikely to be
[01:23:56.060 --> 01:24:03.560]  spam related. It's unlikely to be like spammers are just kind of carefully spamming the network
[01:24:03.560 --> 01:24:08.380]  by just a little bit and then increasing the amount of spam that they send over time.
[01:24:08.420 --> 01:24:14.100]  You know, this by all indications seems to be organic growth in the demand for Monero transactions.
[01:24:15.100 --> 01:24:22.400]  It looks... so from here to here, from like this time in 2016 to this time today, that's a 10x
[01:24:23.120 --> 01:24:29.580]  increase in the transactions per day. So 10x in four years is what we're looking at in terms of
[01:24:29.580 --> 01:24:34.120]  transaction per day growth. It doesn't look like much on this chart, but if you think about it,
[01:24:34.120 --> 01:24:38.360]  that is quite significant. In four years from now at this pace, we're going to be looking at
[01:24:38.360 --> 01:24:44.020]  100,000 transactions per day. And then in the year 2028, maybe in DEF CON we'll be showing a
[01:24:44.020 --> 01:24:50.620]  million transactions a day, who knows. But in the adaptive block size, there is a minor disincentive
[01:24:50.620 --> 01:24:55.280]  that kicks in when blocks get too big. So that disincentivizes miners from including a whole
[01:24:55.280 --> 01:25:01.840]  bunch of transactions into a block. And if that happens, there are user fees that also increase
[01:25:01.840 --> 01:25:08.560]  if the blocks get too big. So miners will continue to be... they won't be so disincentivized that they
[01:25:08.560 --> 01:25:13.880]  stop making blocks, because their reward is not going to go down to zero, because user fees are
[01:25:13.880 --> 01:25:22.660]  going to kick in. Yet there's a disincentive for miners to just blindly process like spam.
[01:25:25.280 --> 01:25:30.620]  All right, so moving on to the third part of the talk, which... so up to now there have been kind of,
[01:25:31.100 --> 01:25:37.500]  I would say, technical under the hood differences between Monero and Bitcoin. At this point of the
[01:25:37.500 --> 01:25:41.860]  talk, I want to talk about fungibility and transparency. And this is where the two kind of
[01:25:41.860 --> 01:25:47.200]  mission statements of these two cryptocurrency projects start to diverge quite strongly.
[01:25:47.200 --> 01:25:53.420]  Bitcoin is transparent. Etched forever, for everyone to see forever, is for every transaction
[01:25:53.420 --> 01:25:57.620]  you can see the sender, the receiver, and the amount. For every address, you can see a complete
[01:25:57.620 --> 01:26:04.980]  live balance history. And so this is contrary to what you might have heard from the popular press,
[01:26:04.980 --> 01:26:10.780]  if you're kind of new to getting into the real details of cryptocurrency, because the news
[01:26:10.780 --> 01:26:15.780]  reports always make Bitcoin out to be this anonymous currency that nobody knows anything
[01:26:15.780 --> 01:26:19.740]  about. Nothing could be further from the truth. It's actually completely transparent. It shows
[01:26:19.740 --> 01:26:25.640]  every single detail. So for example, for the high net worth clients that I work with
[01:26:25.640 --> 01:26:30.560]  in my consulting practice, this tends to be a showstopper once they know about it. Once they
[01:26:30.560 --> 01:26:36.120]  become aware of this fact that, hey, did you know that if you put, say, a million dollars into
[01:26:36.120 --> 01:26:41.300]  Bitcoin and you have a Bitcoin address that has a million worth of Bitcoin in it, everyone can
[01:26:41.300 --> 01:26:46.860]  see that. As soon as they know your Bitcoin address, anyone in the world can go to their
[01:26:46.860 --> 01:26:51.740]  blockchain explorer, type in that address and see, oh, hey, there's like 100 Bitcoin in there
[01:26:51.740 --> 01:26:58.440]  that's worth a lot of money. This is a showstopper for really anyone with wealth. No one with wealth
[01:26:58.440 --> 01:27:07.740]  wants to broadcast that to the world. It's indiscreet and it's unsafe to do that.
[01:27:08.400 --> 01:27:14.220]  So the fact that there's this transparency in Bitcoin, it puts innocent people and businesses
[01:27:14.220 --> 01:27:19.980]  at risk and also businesses, because businesses have as part of their secret sauce as to how they
[01:27:19.980 --> 01:27:26.760]  are able to serve humanity, make a profit at the same time, is that they have
[01:27:26.760 --> 01:27:32.680]  suppliers and customers. They have a certain pattern of suppliers they get their inputs from.
[01:27:32.740 --> 01:27:37.420]  They have certain vendors that they deal with and they buy products from their vendors at a
[01:27:37.420 --> 01:27:42.120]  certain time. Then they sell their products to their customers. So oftentimes the prices of those
[01:27:42.120 --> 01:27:46.440]  products might not be public knowledge if it's a business-to-business sort of transaction.
[01:27:46.900 --> 01:27:52.220]  And so there are lots of trade secrets that businesses have and there's no shame in that,
[01:27:52.220 --> 01:27:58.660]  whereas for some reason, for some people, any sort of desire for privacy gets portrayed as
[01:27:58.660 --> 01:28:05.280]  being something nefarious. For businesses, they routinely need privacy in order to survive as
[01:28:05.280 --> 01:28:10.020]  businesses, in order for their intellectual property, their trade secrets, to not be
[01:28:10.020 --> 01:28:17.920]  copied by competitors. Another problem in Bitcoin that goes beyond privacy is fungibility.
[01:28:17.920 --> 01:28:23.680]  That is that reputation transfers in the Bitcoin network as well as value. So for every coin in the
[01:28:23.680 --> 01:28:28.600]  Bitcoin network, it's traceable back to the miner. So it's as if you have a $10 bill and on the back
[01:28:28.600 --> 01:28:33.860]  of the $10 bill, there's a neat chart that shows for the entire history of the existence of that
[01:28:33.860 --> 01:28:41.360]  $10 bill, basically your address, your bank address. It might not be your name in picture, but
[01:28:41.360 --> 01:28:47.320]  it's your bank address, let's say, your bank account numbers. And then the account numbers
[01:28:47.320 --> 01:28:52.900]  of everyone before you who had that $10 bill going all the way back to the US Mint
[01:28:52.900 --> 01:28:59.820]  that fabricated the $10 bill. And you have a nice neat chart for all to see. It's even worse
[01:28:59.820 --> 01:29:05.760]  than that, because it's not that the $10 bill has that transparent list on it, because if it were
[01:29:05.760 --> 01:29:10.000]  actually on a physical piece of paper, then the holder of the piece of paper would be the only
[01:29:10.000 --> 01:29:15.400]  one who could see it. In Bitcoin, everyone in the world can see that nice transaction list
[01:29:15.400 --> 01:29:21.380]  for every piece of currency that's in the entire system. Every coin is traceable. Who owned it
[01:29:21.380 --> 01:29:26.500]  is traceable all the way back to the miner who first mined it. And what that does, first
[01:29:26.500 --> 01:29:33.940]  it invites voyeurism. So if you know a Bitcoin address, it's just natural to go to a Bitcoin
[01:29:33.940 --> 01:29:37.900]  explorer and type in the address and see how much money is there and see how many transactions they
[01:29:37.900 --> 01:29:43.940]  do. It's a part of the culture of Bitcoin to basically... it's normalized being nosy.
[01:29:44.960 --> 01:29:50.900]  I think it's a pernicious social effect of this feature of the protocol. There's also guilt
[01:29:50.900 --> 01:29:56.020]  by association. And this is far more serious. There are now many companies in existence
[01:29:56.020 --> 01:30:00.940]  whose job it is to try and associate names and faces with every account in Bitcoin,
[01:30:00.940 --> 01:30:06.100]  every address in Bitcoin. They're trying to dox everyone on the Bitcoin network. And what do they
[01:30:06.100 --> 01:30:10.960]  do with that information? They basically come up with the equivalent of a social credit score.
[01:30:11.240 --> 01:30:18.880]  Because every Bitcoin in existence can be traced as to who owned it, they can make a graph showing
[01:30:20.300 --> 01:30:24.640]  people transacting money with each other. And if any of these people happen to be a, quote,
[01:30:24.640 --> 01:30:31.740]  bad person, then those people who happen to have exchanged money with that bad person are now
[01:30:31.740 --> 01:30:38.440]  flagged as potentially being bad themselves. Now, the problem with this is that it's based on
[01:30:38.440 --> 01:30:44.160]  imperfect information that is often easy to misinterpret. So, for example, let's say
[01:30:44.720 --> 01:30:52.820]  somebody buys a car, right? Somebody buys a car and they pay for their purchase with Bitcoin. Or
[01:30:52.820 --> 01:30:58.620]  let's say the opposite, for example. You're selling your used car and you want to get Bitcoin for it.
[01:30:58.620 --> 01:31:03.740]  And so the person who you sell your car to gives you Bitcoin. And now, unbeknownst to you, the
[01:31:03.740 --> 01:31:09.980]  person who sold your Bitcoin... the person who bought your car and gave you Bitcoin for it,
[01:31:09.980 --> 01:31:15.160]  the way that they got their Bitcoin was that they were, for example, selling drugs on the dark web,
[01:31:15.160 --> 01:31:18.940]  right? And that's how they came up with that Bitcoin, which now you own because you sold
[01:31:18.940 --> 01:31:26.120]  your car to this person. And you also failed to do, like everyone else who sells their car
[01:31:26.120 --> 01:31:31.280]  to a stranger by posting an ad on Craigslist, you didn't do a thorough background check on this
[01:31:31.280 --> 01:31:35.620]  person who bought your car, you know, because they just had some Bitcoin. They had Bitcoin, you had a
[01:31:35.620 --> 01:31:40.520]  car, you did an exchange, you went on your way. Unbeknownst to you that they were a quote-unquote
[01:31:40.520 --> 01:31:45.360]  bad person. And now, because they were a bad person and the companies that are doing blockchain
[01:31:45.360 --> 01:31:52.760]  analysis know that, now they are looking at you and thinking, oh, this person just got, you know,
[01:31:52.760 --> 01:32:00.980]  $10,000 worth of Bitcoin from a known drug dealer. Maybe this person is supplying, you know, drug
[01:32:00.980 --> 01:32:07.040]  paraphernalia to that dealer. So now you are under suspicion for that. And it had nothing to do with
[01:32:07.040 --> 01:32:11.900]  you, right? But it had to do with the fact that this money is completely transparent and has this
[01:32:11.900 --> 01:32:19.960]  history behind it. What this means is that there is a social level of censorship, because now when
[01:32:19.960 --> 01:32:24.860]  this person who sells their, who sold their car and got this tainted Bitcoin, now this person
[01:32:24.860 --> 01:32:31.360]  tries to put their tainted Bitcoin into a crypto exchange to get USD out of it. Once they send
[01:32:31.360 --> 01:32:36.720]  their tainted Bitcoin to their exchange, it gets frozen, because now it's under suspicion. And now
[01:32:36.720 --> 01:32:41.560]  the customer who's done this has to go through all sorts of extra hoops to kind of prove their
[01:32:41.560 --> 01:32:46.780]  innocence. And to do that, they're trying to prove their innocence to somebody who really doesn't care
[01:32:47.560 --> 01:32:52.320]  to know the truth. They're just, they just want to cover liability on their side. They just
[01:32:52.320 --> 01:32:57.620]  want to make sure that they don't get in trouble. So, you know, probably the most, the easiest thing
[01:32:57.620 --> 01:33:02.840]  to do is just to, you know, quarantine that money, not give it back to the customer and wait for
[01:33:02.840 --> 01:33:07.940]  the authorities to give them permission to give it back, something like that. And none of this was,
[01:33:07.940 --> 01:33:14.700]  anything to do with the innocent person involved. So this is why the transparency of Bitcoin is a
[01:33:14.700 --> 01:33:20.400]  problem, even for innocent, squeaky people who have nothing to hide, is that because the system
[01:33:20.400 --> 01:33:28.420]  is transparent, false accusations can be made against them due to false assertions, incomplete
[01:33:28.420 --> 01:33:32.820]  misunderstandings that other third parties are making based on that transaction data.
[01:33:33.600 --> 01:33:39.900]  In contrast, Monero is fungible, which means that every Monero is indistinguishable from every other
[01:33:39.900 --> 01:33:45.200]  Monero. There are three technologies that promote this indistinguishability. One is ring signatures.
[01:33:45.200 --> 01:33:50.920]  So those keep transacting senders private. Stealth addresses keep transacting receivers private. And
[01:33:50.920 --> 01:33:56.920]  ring CT keeps transaction amount sent private. So all three of these are present on the Monero
[01:33:56.920 --> 01:34:03.120]  blockchain. But when a person joins the Monero network with, by downloading the Monero software
[01:34:03.120 --> 01:34:08.040]  at getmonero.org, and running that on their computer and downloading a copy of the blockchain
[01:34:08.040 --> 01:34:15.340]  from the, from their peer miners, then they are getting a complete history of who sent what to
[01:34:15.340 --> 01:34:20.560]  who in Monero. The difference is in Monero, it's all encrypted, because by default, it's none of
[01:34:20.560 --> 01:34:25.120]  your business, like what the details of those. You can, you will know that transactions happened.
[01:34:25.120 --> 01:34:30.160]  You will know when they happened. And you will know that they happened, but you won't see the
[01:34:30.160 --> 01:34:35.000]  details of what happened. You won't see the details of who's, who was the sender, who is the receiver
[01:34:35.000 --> 01:34:41.860]  and or what the amount was. Two of these three technologies were included in the original white
[01:34:41.860 --> 01:34:45.780]  paper that defined Monero, which is the crypto note white paper, ring signatures and stealth
[01:34:45.780 --> 01:34:51.720]  addresses, but ring CT was not. Ring CT was a innovation. And the history of how this got into
[01:34:51.720 --> 01:34:56.880]  the network is an example of the dedication of this group of people to put it in. Ring CT
[01:34:56.880 --> 01:35:02.520]  required several ingredients to come to fruition. It first required original cryptographic research.
[01:35:02.520 --> 01:35:09.700]  We're talking postdoc PhD mathematician level cryptographic research that goes through audit
[01:35:09.700 --> 01:35:19.140]  and peer review. Second, you need development of code to implement this new math. And, you know,
[01:35:19.140 --> 01:35:24.100]  on the sharp end of the bell curve to be doing this because like the math is not trivial and
[01:35:24.100 --> 01:35:29.580]  then to write code that faithfully implements that new math is also not trivial. To write
[01:35:29.580 --> 01:35:36.880]  clean code that does not screw up somehow in implementing that is even harder. And so that
[01:35:36.880 --> 01:35:42.360]  was another ingredient in getting ring CT implemented. Also, just in case there were
[01:35:42.360 --> 01:35:47.220]  problems in the code that got written, it got subject to external audit. So basically the
[01:35:47.220 --> 01:35:54.380]  community was solicited for donations to pay for external auditors to examine the code of ring CT
[01:35:54.380 --> 01:36:01.560]  and make sure that there were no subtle errors of memory overwrites or stuff, you know, or such.
[01:36:02.100 --> 01:36:08.180]  So and that got approved. Then finally, it doesn't matter if code gets written if nobody actually
[01:36:08.180 --> 01:36:15.660]  runs it. So the community of Monero node owners needed to get on board and download this and agree
[01:36:15.660 --> 01:36:21.760]  and update their computers once the new code came out. And because this was a hard fork that that
[01:36:21.760 --> 01:36:27.700]  ring CT was again, a hard fork being that it's not backwards compatible, which means if if a
[01:36:27.700 --> 01:36:31.660]  node owner fails to update their computer, they're going to be left out, they're going to be kicked
[01:36:31.660 --> 01:36:40.490]  off the coin. So all these ingredients had to happen for ring CT to go in. Here are some charts
[01:36:40.490 --> 01:36:46.590]  that show the evolution of how this went down. On the top, I'm showing daily average bytes per
[01:36:46.590 --> 01:36:52.630]  transaction. This is how many bytes, like how much disk space is taken up by a transaction on
[01:36:52.630 --> 01:36:57.450]  both the Bitcoin network and the Monero network. Bitcoin is the chart you see in black. And it's
[01:36:57.450 --> 01:37:03.170]  been pretty constant over time. So that's one of their, I guess, that's part of their community
[01:37:03.170 --> 01:37:07.550]  ethos over at Bitcoin is that they want a stable protocol, they don't want to rock the boat,
[01:37:07.550 --> 01:37:11.470]  they don't want to make too many changes, because they feel that they have an enormous amount of
[01:37:11.470 --> 01:37:18.050]  money in custody, under their control, they don't want to do anything that might jeopardize
[01:37:18.670 --> 01:37:25.590]  safety in their view. Of course, if you take a broader view, the amount of money in Bitcoin is
[01:37:25.590 --> 01:37:32.230]  just like a trivial amount in terms of global finance. So it's arguable as to whether that
[01:37:32.230 --> 01:37:41.490]  sort of high horse view of the importance of the intrinsic goodness of what's already been done
[01:37:41.490 --> 01:37:46.090]  is maybe subject to question. That's something that's different in Monero. In Monero,
[01:37:46.090 --> 01:37:51.710]  we are used to acknowledging that this is all experimental, acknowledging that they're going
[01:37:51.710 --> 01:37:57.970]  to be new research, new innovations that make fungibility even better. And we go through the
[01:37:58.510 --> 01:38:04.270]  time and the trouble and the effort to actually make that happen. So in Monero, you can see that
[01:38:04.270 --> 01:38:10.670]  the bytes per transaction started out as being pretty high, they're much bigger than in Bitcoin.
[01:38:10.670 --> 01:38:14.510]  And this was in the early days of denominated outputs. So in the early days of Monero,
[01:38:14.510 --> 01:38:20.130]  you had, for example, little nuggets of Monero, you can think of 1, 2, 3, 4, 5 Monero,
[01:38:20.130 --> 01:38:27.210]  like little dollar bills, but they're like Monero bills. So doing a Monero transaction in the old
[01:38:27.210 --> 01:38:32.030]  days meant that if you were going to send 123 Monero to somebody, you would need to scrounge
[01:38:32.030 --> 01:38:37.110]  around and find a 100 Monero chunk, a 20 Monero chunk, and a three Monero chunk, and then you
[01:38:37.110 --> 01:38:42.130]  would send those out. And then those like little dollar bills would have to get broken up and then
[01:38:42.130 --> 01:38:47.650]  sent to whoever you were sending your money to. And so as a result, there were a large number of
[01:38:47.650 --> 01:38:52.390]  inputs, large number of outputs on every transaction. And there were the transactions
[01:38:52.390 --> 01:38:59.210]  rather large. But this had the drawback of if you can see the denominations that are being sent
[01:38:59.210 --> 01:39:09.190]  around, that's harmful to fungibility. Because you can see that this, you know, certain accounts
[01:39:09.190 --> 01:39:16.290]  on the Monero network seem to have been identified with certain denominations of Monero chunks.
[01:39:16.290 --> 01:39:21.350]  And so you can make some assertions about that break fungibility in that case.
[01:39:21.350 --> 01:39:25.630]  There were some papers that were published that made the case that fungibility in Monero was
[01:39:26.590 --> 01:39:32.690]  potentially breakable under certain circumstances. But these papers were written before 2017. And yet
[01:39:32.690 --> 01:39:39.070]  they continue to be kind of parroted about to this day as and shown as examples of weaknesses in
[01:39:39.070 --> 01:39:45.450]  Monero, whereas this got fixed in 2017, kind of an eternity ago in cryptocurrency standards.
[01:39:46.010 --> 01:39:52.290]  So RingCT was enabled in 2017, at which point the bytes per transaction went up by quite a bit.
[01:39:52.290 --> 01:39:57.310]  Then RingCT became mandatory. And now you can see that transactions were about, you know,
[01:39:57.310 --> 01:40:02.870]  1000 times larger than Bitcoin transactions in throughout 2017, 2018. This was until bullet
[01:40:02.870 --> 01:40:07.630]  proofs came around. So this was another independent research effort, in which it was found that the
[01:40:08.290 --> 01:40:15.030]  higher level math that RingCT used in order to ensure that the value of outputs was the same as
[01:40:15.030 --> 01:40:20.010]  the value of the inputs, i.e. ensure that no money was being created out of thin air,
[01:40:20.010 --> 01:40:24.810]  that cryptographic proof could be done in much smaller byte space than could have been done
[01:40:24.810 --> 01:40:30.070]  earlier. And so as you can see, overnight, basically, the transaction size dropped back down
[01:40:30.070 --> 01:40:37.070]  with RingCT and bullet proofs. Now, recently, there's been CLSAGs. This is a new research
[01:40:37.070 --> 01:40:42.270]  initiative that was developed by the Monero Research Lab, and it's gone through audit,
[01:40:42.270 --> 01:40:48.210]  and the audit came back good. And so in October, we are projecting to go with another hard fork to
[01:40:48.210 --> 01:40:53.810]  implement CLSAGs, and that is going to decrease the transaction sizes in Monero by about 20%,
[01:40:53.810 --> 01:40:58.930]  which this dotted line is kind of showing you the magnitude of that. So basically, there is
[01:40:58.930 --> 01:41:05.730]  ongoing active research in Monero to improve the way the engine works under the hood.
[01:41:06.090 --> 01:41:10.290]  This is the kind of thing that is actually rare to see in other cryptocurrencies. Other
[01:41:10.290 --> 01:41:17.590]  cryptocurrencies tend to make big announcements, use lots of buzzwords, and not actually improve
[01:41:17.590 --> 01:41:23.570]  anything. And it's actually the opposite in Monero. There's not a lot of big splashy
[01:41:23.570 --> 01:41:29.630]  announcements. People work generally quietly without fanfare, and from time to time introduce
[01:41:29.630 --> 01:41:35.010]  something that improves the actual product. All right, and the bottom here, you can see the daily
[01:41:35.010 --> 01:41:41.010]  average transaction fee. And so over history, and the scale here is, again, quite large. So it's one
[01:41:41.010 --> 01:41:46.310]  penny to $100 per transaction. So at times of peak demand, like for example, in the last bull market
[01:41:46.310 --> 01:41:52.010]  in the end of 2017, you can see that transaction fees were, in both Bitcoin and Monero, were quite
[01:41:52.010 --> 01:41:59.410]  high. They were in like the $50 range. But then now, since then, bulletproofs have gone in.
[01:41:59.450 --> 01:42:04.430]  When bulletproofs went in, not only did the transaction size drop, but also the fee to send a
[01:42:04.430 --> 01:42:10.110]  transaction dropped by that order of magnitude sort of level. So that now, transaction fees in
[01:42:10.110 --> 01:42:15.790]  Monero are on the order of a penny. Whereas in Bitcoin, now that there's what is potentially a
[01:42:15.790 --> 01:42:23.390]  new bull run starting, you see transactions in Bitcoin creeping up again to now the $5-$10
[01:42:23.390 --> 01:42:31.110]  range. And if there's another burst of interest in cryptocurrencies that is driven by the price,
[01:42:31.110 --> 01:42:36.650]  expect to see, again, another spike in the transaction cost for sending Bitcoin.
[01:42:37.190 --> 01:42:42.630]  It might spike again in Monero too, who knows, but we're already at a sub-penny level already. So
[01:42:44.090 --> 01:42:50.210]  we're looking good on the fee front. So Monero benefits people with nothing to hide. And
[01:42:50.210 --> 01:42:55.710]  primarily it does that by eliminating the risk of receiving coins that are tainted due to no
[01:42:55.950 --> 01:43:01.050]  fault of the receiver. It's even worse than that. So for example, let's say you're an owner of
[01:43:01.050 --> 01:43:07.550]  Bitcoin and you get hacked. Somebody steals your Bitcoin, right? And let's say that the person who
[01:43:07.550 --> 01:43:13.750]  stole your Bitcoin now goes on the dark web and spends it. Whereas let's say you are a squeaky
[01:43:13.750 --> 01:43:20.390]  clean person. You don't even know what the dark web is, or you do absolutely nothing that could
[01:43:20.390 --> 01:43:25.370]  get you in trouble. You're totally 100% squeaky clean, but you have Bitcoin and this Bitcoin is
[01:43:25.370 --> 01:43:29.450]  on a transparent ledger, which is completely traceable. So now you get hacked, you've lost
[01:43:29.450 --> 01:43:34.170]  your money. So in addition to suffering the loss of your money, now it turns out that the person who
[01:43:34.170 --> 01:43:41.150]  stole your money is now using it to buy drugs, right? So now your address, your identity is
[01:43:41.150 --> 01:43:45.810]  associated with drug buying, right? Let's say something really bad happens. The person who
[01:43:45.810 --> 01:43:51.630]  stole your money does something extremely bad with it. Now your identity is caught up with that.
[01:43:51.650 --> 01:43:56.710]  And so now you might be even investigated for crimes that were committed
[01:43:56.710 --> 01:44:02.970]  with your formerly your Bitcoin that got stolen. And so now, not only are you suffering the loss
[01:44:02.970 --> 01:44:09.110]  of your money, you're having to now explain to people that, no, no, no, it's not the case that I
[01:44:09.550 --> 01:44:14.130]  paid this guy to buy drugs for me. I actually had my money stolen from me.
[01:44:14.130 --> 01:44:17.790]  You know, you have to... all sorts of headache can happen.
[01:44:19.970 --> 01:44:24.290]  All right. One way to look at this is in the Akerlof framework. So this was a Nobel prize
[01:44:24.290 --> 01:44:29.270]  winning paper in economics. It has to do with used cars. And so I relate this. So first I'll
[01:44:29.270 --> 01:44:34.630]  explain the paper and then I'll apply it because that has applicants to both safe mode Defcon,
[01:44:34.630 --> 01:44:39.790]  like our virtual meeting that we're doing, and also a surveillance state with transparent coins.
[01:44:40.010 --> 01:44:42.990]  So there are two used cars types. There are lemons and there are peaches.
[01:44:43.210 --> 01:44:48.130]  Lemons are the cars that are going to break right away. And peaches are the well-maintained used
[01:44:48.130 --> 01:44:53.770]  cars. So sellers know which type of car they have. If you own a lemon, you know it because
[01:44:53.770 --> 01:44:58.290]  you were there in the hurricane that the, you know, when the, when your car was under, you know,
[01:44:58.290 --> 01:45:02.950]  five feet of water and flooded your car, it was yours. And you know that that happened.
[01:45:03.070 --> 01:45:06.990]  And now you're trying to sell your car because it's damaged. That's a lemon. A peach is a car
[01:45:06.990 --> 01:45:11.430]  that, you know, this is the type of owner who goes and changes the oil and does all the maintenance
[01:45:11.430 --> 01:45:15.790]  that you have to do on a car to keep it in good condition. So the sellers know what kind of car
[01:45:15.790 --> 01:45:20.050]  they have, but the buyers don't because both lemon sellers and peach sellers make sure that
[01:45:20.050 --> 01:45:26.130]  the paint job on their car is extra shiny. So as on a superficial level, both lemons and peaches
[01:45:26.130 --> 01:45:30.390]  look identical to buyers. So the buyers can't tell lemons apart from peaches, but they know
[01:45:30.390 --> 01:45:34.550]  that they are ignorant in this situation. They know that they could end up with a lemon.
[01:45:34.610 --> 01:45:39.770]  So the Akerlof paper brilliantly explains this race to the bottom that happens in this
[01:45:39.770 --> 01:45:45.210]  asymmetric information market in which buyers are armed with less information than the sellers are.
[01:45:45.910 --> 01:45:50.670]  If you look at what is the offer price that a buyer is going to offer for a car,
[01:45:50.670 --> 01:45:55.970]  the offer price is going to be equal to the lemon price because that's the minimum possible price
[01:45:55.970 --> 01:46:00.750]  that a car could be, right? Lemons are worth less than peaches, so at the minimum you're going to be
[01:46:00.750 --> 01:46:05.410]  offering the lemon price. And then you're going to offer more than the lemon price, but that's
[01:46:05.410 --> 01:46:09.570]  going to be contingent on what you think the probability is that you're going to get a peach
[01:46:09.570 --> 01:46:13.750]  versus a lemon. So if you think there's a zero percent chance you're going to get a peach, well
[01:46:13.750 --> 01:46:17.330]  you're just going to offer the lemon price. If you think there's a hundred percent chance that
[01:46:17.330 --> 01:46:22.830]  you're going to get a peach, then you're going to offer the lemon price plus the difference between
[01:46:22.830 --> 01:46:26.650]  the peach and the lemon price. In other words, you'll offer the peach price. If you think the
[01:46:26.650 --> 01:46:30.370]  probability is somewhere in between, then you're going to adjust your offer price to be somewhere
[01:46:30.370 --> 01:46:35.630]  in between. So that's the offer price that a rational buyer is going to offer for a car in
[01:46:35.630 --> 01:46:39.670]  this market in which they are ignorant, but they know that they're ignorant and they can price
[01:46:39.670 --> 01:46:45.890]  their uncertainty. They can adjust their offer price to account for this uncertainty.
[01:46:46.390 --> 01:46:51.750]  So what do the lemon sellers do when they see this price? Well, they see a great offer because
[01:46:51.750 --> 01:46:58.270]  they're selling a lemon and the sucker here, the sucker, the buyer, is offering quite a bit higher
[01:46:58.270 --> 01:47:02.990]  price than the lemon price. So the lemon seller is delighted. They're going to say, okay, I thought
[01:47:02.990 --> 01:47:09.490]  about it and yeah, I guess I'll accept your offer, right? So that's what the lemon seller says. The
[01:47:09.490 --> 01:47:15.710]  they know that the value of their car is worth what a peach is, but the buyers are ignorant.
[01:47:15.710 --> 01:47:20.330]  Like you can tell them all day that you've done a great job of maintaining your car, but the buyers
[01:47:20.330 --> 01:47:23.390]  at the end of the day, they're going to be skeptical. They don't know if you're really
[01:47:23.390 --> 01:47:26.050]  telling them the truth. They don't know if you're telling them the partial truth.
[01:47:26.350 --> 01:47:30.910]  So the price that the buyer is going to offer is less than that of the peach price.
[01:47:30.990 --> 01:47:35.190]  And so what's going to happen then? The peach sellers are going to become discouraged. They're
[01:47:35.190 --> 01:47:40.690]  going to be basically kind of disappointed by the fact that the market is not taking to account
[01:47:40.690 --> 01:47:45.570]  their goodness, their moral goodness, and taking care of their car is not going to be reflected in
[01:47:45.670 --> 01:47:51.130]  a high marketplace price. So they will leave the market. They will delete their Craigslist ad.
[01:47:51.130 --> 01:47:55.810]  They will stop selling their car. They will just keep their car until it runs into the ground.
[01:47:55.830 --> 01:48:01.550]  What happens then? Because the peach sellers leave, like a few of them leave,
[01:48:01.550 --> 01:48:06.550]  now the proportion of cars in the market that are lemons have gone up.
[01:48:06.690 --> 01:48:12.490]  A greater fraction of the cars that are available for sale are now lemons. And eventually,
[01:48:12.490 --> 01:48:16.770]  buyers are going to get wise to that fact. When they get wise to that fact, they're going to lower
[01:48:16.770 --> 01:48:22.670]  further their offer price. And thus the negative feedback loop is born because the offer price
[01:48:22.670 --> 01:48:28.450]  keeps going down. Every time the offer price goes down, lemon sellers still accept it because
[01:48:28.890 --> 01:48:33.110]  they're getting an offer that is still higher than the lemon price. They're making a profit.
[01:48:33.110 --> 01:48:36.450]  And more peach sellers are going to get more and more discouraged and leave the market.
[01:48:36.450 --> 01:48:42.610]  You have a situation at the end where only lemons exist in this car market. So this was the Ekeloft
[01:48:42.610 --> 01:48:50.270]  paper that got the Nobel Prize. Let's think about this in terms of the pandemic. So in health terms,
[01:48:50.270 --> 01:48:56.550]  peaches are people who are healthy, right? So healthy people are the peaches and they are now
[01:48:57.190 --> 01:49:03.730]  faced with the decision of do I engage in this super thing called DEF CON, in which a whole
[01:49:03.730 --> 01:49:09.730]  bunch of smart people get together and talk about cool, geeky stuff. And you make new geeky friends
[01:49:09.730 --> 01:49:17.590]  and you're out in Vegas and have fun. So that decision is basically, are you going to engage
[01:49:17.590 --> 01:49:23.870]  in this social marketplace in which you are dealing with other people? So you could be
[01:49:23.870 --> 01:49:30.750]  with all peaches when you get to the live in person DEF CON. That is, everyone could be healthy.
[01:49:31.490 --> 01:49:35.590]  But you are aware that that's not the case. There are going to be some lemons. There are
[01:49:35.590 --> 01:49:39.790]  going to be some people who are sick and don't know it because of the nature of the virus.
[01:49:40.110 --> 01:49:45.790]  So basically, you have to gauge your overall social utility of going to the conference
[01:49:45.790 --> 01:49:50.090]  by the probability that you're going to end up with a lemon, i.e. get sick.
[01:49:50.090 --> 01:49:55.970]  And so the rational decision, if the penalty function of getting a lemon is large enough
[01:49:55.970 --> 01:50:00.990]  and the probability of it is getting large enough, then the rational thing to do is to withdraw from
[01:50:00.990 --> 01:50:05.930]  that marketplace and decide to do DEF CON in safe mode. And that's exactly what we've done this year.
[01:50:06.970 --> 01:50:11.010]  Let's apply this to the marketplace for transparent coins. In transparent coins,
[01:50:11.010 --> 01:50:16.290]  or surveillance coins as I like to call them, the complete history of every coin is traceable
[01:50:16.290 --> 01:50:23.510]  going back. That means if you're a squeaky clean person, the analogy is that you are a
[01:50:23.510 --> 01:50:28.850]  healthy person. You are a peach seller. You are a squeaky clean person with a good reputation.
[01:50:28.850 --> 01:50:36.570]  And so your social status is healthy. The thing is, if you deal with Bitcoin with other people,
[01:50:36.570 --> 01:50:41.150]  are you going to unknowingly be dealing, are you going to by mistake do a transaction with somebody
[01:50:41.150 --> 01:50:47.830]  who is not healthy in terms of a legal status? You don't know that.
[01:50:48.830 --> 01:50:53.890]  Just like the lemon buyer and just like the person who's thinking about going to a con,
[01:50:54.630 --> 01:50:59.890]  you could suffer a lemon consequence just by dealing with other people in this network
[01:50:59.890 --> 01:51:05.010]  because this network has this undesirable feature that the coins are not fungible.
[01:51:05.310 --> 01:51:09.730]  So what is a squeaky clean person going to do? They're going to tend to want to
[01:51:09.730 --> 01:51:16.430]  go to a coin that rewards them and does not put them in jeopardy due to the actions that they
[01:51:16.430 --> 01:51:20.730]  can't control of other people on the network. So you're going to see the squeaky clean people
[01:51:20.730 --> 01:51:26.470]  going to something like Monero, which is counterintuitive, certainly according to the
[01:51:27.070 --> 01:51:32.910]  biased and misleading portrayal that often gets put on Monero. It's the squeaky clean people who
[01:51:32.910 --> 01:51:39.150]  need Monero the most. So Monero is what Bitcoin noobs think they bought. It's sound money in
[01:51:39.150 --> 01:51:49.460]  safe mode. All right. I have limited time, so I'm going to just go to talking about how to get
[01:51:49.460 --> 01:51:56.020]  involved. One way you could get involved is to purchase some Monero. Because again, I started
[01:51:56.020 --> 01:52:02.760]  this talk talking about the kind of out of control extension of the fiat money supply around the
[01:52:02.760 --> 01:52:07.860]  world that is currently happening as a result of the pandemic. And that led to the idea that one
[01:52:07.860 --> 01:52:12.220]  should maybe spend some time looking into alternate forms of scarcity that are not
[01:52:12.220 --> 01:52:16.520]  controlled by governments. That would be precious metals. And also, now that there's Nakamoto
[01:52:16.520 --> 01:52:23.420]  consensus, Bitcoin and Monero. How does one kind of process the relative expensiveness or cheapness
[01:52:23.420 --> 01:52:30.600]  of these assets? So here is, I think, probably the only price chart that should be looked at by
[01:52:30.600 --> 01:52:36.200]  anyone who's looking to think of cryptocurrency as an investment. And that is, I'm doing a long
[01:52:36.200 --> 01:52:40.660]  term timescale. So this is from 2009 to the present. 2009 being, of course, when the Bitcoin
[01:52:40.660 --> 01:52:45.160]  white paper came into being. And what I'm doing here is I'm showing the value of all the world's
[01:52:45.160 --> 01:52:50.660]  Bitcoin. And I'm dividing that by the value of all the world's gold. All the world's above ground
[01:52:50.660 --> 01:52:55.220]  gold. So there are several variables that go into this chart. First, there's the number of Bitcoin
[01:52:55.220 --> 01:52:59.840]  in existence at any given time. There's the price of the Bitcoin. There's the amount of gold in
[01:52:59.840 --> 01:53:04.380]  existence at any given time and the price of gold. You need all four of those ingredients to come up
[01:53:04.380 --> 01:53:08.700]  with this ratio chart, which I'm showing a log scale again. And then I've done that again for
[01:53:08.700 --> 01:53:13.220]  Monero. This is the value of all the world's Monero divided by the value of all the world's gold.
[01:53:13.320 --> 01:53:18.220]  And what you see here is that currently, all the world's Bitcoin is worth something like 2%
[01:53:18.220 --> 01:53:23.580]  that of all the world's gold. And all the Monero in the world is worth about one one hundredth of
[01:53:23.580 --> 01:53:28.260]  one percent of all the world's gold. You might be aware that there's been a recent kind of
[01:53:28.260 --> 01:53:33.600]  spike of interest in cryptocurrency prices. Bitcoin is back over $10,000 for the first time
[01:53:33.600 --> 01:53:38.960]  in a few years. So there's been a lot of hype, but you don't see that here because there's also
[01:53:38.960 --> 01:53:45.440]  been a spike in the price of gold. So basically, the relative valuation of crypto to gold has
[01:53:45.440 --> 01:53:52.780]  been flat in the post-pandemic time period. Now, given that gold is a physical good,
[01:53:52.780 --> 01:53:57.740]  which is subject to all of the surface contamination issues that any
[01:53:58.460 --> 01:54:03.340]  physical object has the disadvantage of suffering in the COVID era,
[01:54:03.340 --> 01:54:09.820]  is this rational that that crypto to gold cap ratios have been flat during the pandemic? I'll
[01:54:09.820 --> 01:54:15.280]  leave that to you to decide. Second, of these two cryptocurrencies, there is one that actually acts
[01:54:15.280 --> 01:54:21.380]  like gold because it's fungible. Gold does not have on the back of every gold bar a list of
[01:54:21.380 --> 01:54:28.340]  everyone who owned that gold bar before you did. And so it's actually a more apt comparison to
[01:54:28.340 --> 01:54:34.440]  compare the value of Monero versus gold. So is it rational that the amount, the valuation of Monero
[01:54:34.440 --> 01:54:39.820]  is one ten thousandth of that of gold, whereas the valuation of Bitcoin is one, basically,
[01:54:39.820 --> 01:54:45.760]  one fiftieth that of gold? So that's another question to think about. One thing I also wanted
[01:54:45.760 --> 01:54:53.200]  to show was a chart that I think counters this still and very stale narrative that there's
[01:54:53.200 --> 01:54:59.960]  infinite inflation in Monero. So what I've done is I've, I'm answering this question. Let's say you
[01:54:59.960 --> 01:55:07.420]  have an investor who today decides that they want to buy one millionth, so one out of every one
[01:55:07.420 --> 01:55:14.500]  million of one of these alternative forms of scarcity. And to protect themselves against
[01:55:14.500 --> 01:55:20.000]  inflation, they are not going to buy one millionth of today's supply. They are going to buy one
[01:55:20.000 --> 01:55:26.420]  millionth of the supply in 100 years time. So they're going to look at what is the supply of
[01:55:26.420 --> 01:55:33.540]  this scarce asset going to be in the year 2120. And I would like to buy one millionth of that today.
[01:55:33.540 --> 01:55:37.860]  So that's the question I'm answering. First, let's look at gold. So currently there are about
[01:55:37.860 --> 01:55:44.880]  200,000 metric tons of above ground gold, and gold has been expanding at about 1.8% per year.
[01:55:44.920 --> 01:55:49.820]  When you compound that over 100 years, that ends up being pretty significant. So in 2120, at that
[01:55:49.820 --> 01:55:54.500]  rate, there's going to be over a million metric tons of gold, which means to buy one one millionth
[01:55:54.500 --> 01:55:59.320]  of all the gold in the world, you're going to have to end up buying more than a metric ton of it,
[01:55:59.320 --> 01:56:04.680]  which at the current price is going to be $76 million worth of gold. That buys you one one
[01:56:04.680 --> 01:56:10.020]  millionth of the projected gold supply in the year 2120. So let's do that with Bitcoin. So with
[01:56:10.020 --> 01:56:14.880]  Bitcoin, they're going to, you know, be very proud that 100 years from today, there's going to be
[01:56:14.880 --> 01:56:20.040]  only 21 million Bitcoin in existence. And that's an easy number for even normies to remember and
[01:56:20.040 --> 01:56:25.540]  understand. So today, there are about 18 million Bitcoin. In the future, there'll be 21 million.
[01:56:25.540 --> 01:56:32.440]  How much does it cost? $244,000. How about in Monero? Well, here's today's emission. Now we
[01:56:32.440 --> 01:56:36.700]  have the tail emission, right? So that commonly gets thrown about as being infinite inflation.
[01:56:36.700 --> 01:56:41.260]  Well, actually, we know what it's going to be. And in 100 years from now, it's not that bad.
[01:56:41.280 --> 01:56:46.480]  The coin supply in 100 years from now in Monero will be less than double what it is today.
[01:56:46.480 --> 01:56:52.100]  That's not too bad for a century. So to buy one one millionth of all the Monero that will be in
[01:56:52.100 --> 01:56:59.900]  the world in the year 2120 will cost you a total of $3,000. So some more framework for
[01:57:00.460 --> 01:57:04.980]  people's consideration when assessing the relative valuation of these assets.
[01:57:06.540 --> 01:57:12.700]  Okay. Thank you for listening. If you want to learn more about Monero, there's
[01:57:12.700 --> 01:57:19.700]  monerovillage.org for the rest of the festivities happening this week. Also, the official website
[01:57:19.700 --> 01:57:25.740]  is getmonero.org. That's important to know. It's getmonero.org, not .com, not other variants.
[01:57:25.740 --> 01:57:30.220]  If you want to get in touch with me here at DEF CON on the discourse, I'm intj440.
[01:57:30.320 --> 01:57:33.880]  Or if you want to get in touch with me over email, it's Daniel at Sweetwater Consulting.
[01:57:33.980 --> 01:57:34.900]  Thanks for your attention.